Baroness Amos: My Lords, I am happy to do that. Overall, our aid has increased from £2.1 billion in 1997 to £5.9 billion last year. We have spent 39 per cent of that through multi-lateral organisations such as the World Bank, the Asian Development Bank and others. Of our bilateral budget—the budget we spend with individual countries—we have spent 45 per cent in Africa and 38 per cent in Asia.

Lord Drayson: My Lords, I am sure that the House will wish to join me in expressing our sincere condolences to the family and friends of Corporal John Cosby of the 1st Battalion, The Devon and Dorset Light Infantry, who was killed yesterday in Iraq.
	UK forces are undertaking tasks in support of the Basra security plan announced by Prime Minister Maliki under the authority of the state of emergency. The plan includes an increased Iraqi Army presence, a programme of projects aimed at improving conditions through development, and enabling support for better governance. UK forces continue to provide training, mentoring and other tasks in support of the Iraqi security forces.

Lord Rooker: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 17. In moving this Motion, I shall speak also to Amendments Nos. 19 and 119 to 131. Amendment No. 17 is essentially a consequential amendment to Amendment No. 119, which enables additions to the register of land which Parliament has recognised as common land or town or village greens, but which was not registered under the Commons Registration Act 1965. It responds to amendments tabled in Standing Committee in the other place. It also enables the registration of land which was statutorily allotted as recreation grounds under 19th-century enclosure awards.
	Amendments Nos. 124 and 128 provide alternative mechanisms to enable the deregistration of buildings and the curtilage of buildings where those buildings were present before the land was registered under 1965 Act. Amendments Nos. 19, 120 to 123, 125 to 127 and 129 to 131 enable changes to the register under Schedule 2 on initiative of the commons registration authority, rather than in response to an application.
	Moved, That the House do agree with the Commons in their Amendment No. 17.—(Lord Rooker.)

Baroness Byford: My Lords, I am grateful to the Minister for coming back on this matter. We had long discussions on it at earlier stages of the Bill, but it was only at Third Reading that the difficulty of commons association was raised in full, so I am very pleased to note the redefinition of the commons "association" to "council". We welcome that change, as will my noble friend the Duke of Montrose, who raised the matter again at Third Reading.
	This issue was originally drawn to our attention by Professor Ian Mercer from the Dartmoor Commoners Council, for which we are grateful. The difficulty was that if the body was an association then members could not be part of it. It is slightly technical and we are very pleased to see the amendment.

Lord Rooker: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 80 to 85. I shall speak also Amendments Nos. 87 to 89, 95 and 96, 102 and 103.
	On Amendments Nos. 80 to 84, normally, under Clause 38, proposed works that would impede access to or over common land need the prior consent of the national authority. Such works may for example include fencing, building, surfacing or earthworks.
	Subsection (6)(a) and (b) automatically exempt a particular type of works from that requirement. Amendments Nos. 80 and 81 emphasise that to be exempt in this way, works must be carried out under a power conferred by or under an enactment—for example, those undertaken by a statutory board of conservators.
	It was never intended that works achieve such exemption if they are carried out under a landowner's ordinary powers at common law, just because they happen also to require statutory authority in particular circumstances—such as listed building consent or planning consent. The amendments make that position clear. Amendment No. 83 is consequential.
	Amendment No. 82 relates to commons management schemes made under the Metropolitan Commons Act 1866 or the Commons Act 1899. Those schemes allow conservators or district councils to manage commons for public benefit. The amendment makes clear that works under such schemes are exempt from Part 3 consent only if the scheme does not require anyone's approval for the works. Amendment No. 84 is a technical amendment.
	Amendment No. 85 relates to Clause 39(3), which allows the national authority to consent to a works proposal with modifications or conditions. That is an important step forward, because in the past it has sometimes proved necessary for applicants to reapply to get an application into an acceptable form. Where the national authority imposes such modifications or conditions, subsection (5) as drafted would only have let the person to whom the consent is given apply to vary or revoke the modification or condition.
	Amendment No. 85 is a technical amendment to make sure that whoever is carrying out or proposing to carry out works for which a consent has been given will be eligible to apply in that way, even if they are not the person to whom the consent was given. This might arise, for example, where the land changes hands after consent is applied for, or just after it is given.
	Amendments Nos. 87 to 89 deal with the contravention of the controls on works in Clause 38, which opens the way to enforcement action through a county court. Under Clause 41(2), county courts will have the discretion to make an order, which they will exercise, as now, according to how serious the consequences of the contravention may be. The county courts may order the removal of the unlawful works and the restoration of the land to its former condition. Where consent was given but the works did not comply with it, the county courts may order compliance with the terms of the consent. The amendments are technical and ensure that any enforcement order can require action by the most appropriate person.
	Amendments Nos. 95 and 96 reflect similar provisions in Clause 43(5), and enable an order to be made by the national authority exempting certain land from the controls on works in Clause 38. In making the amendments, we have in mind the Warcop military training area in Cumbria. The controls on works there ceased to apply when the rights of common were acquired in 2003 following a public inquiry. I confirm that the Government will consult in due course on how best to maintain the status quo so that there is no interference with the delivery of our armed forces' training needs. We are not aware of any other site where the circumstances would enable an order to be made using the powers conferred by the amendments.
	On Amendments Nos. 102 and 133, Section 31 of the Commons Act 1876 requires anyone intending to enclose or approve part of a common to publish that intention in a prescribed way at least three months before so that commoners or others can object. This protection was superseded by Section 194 of the Law of Property Act 1925. Any action that would be sufficient to constitute an enclosure or approval would certainly impede the commoners' access over the land in question, and would therefore require consent from the Secretary of State under Section 194. We know of no case where the action required by Section 31 of the 1876 Act has been taken. Equally, when Part 3 replaces Section 194, it will require consent for works that impede the access of commoners or indeed anyone else over the land. That is why we are repealing these three measures.
	Moved, That the House do agree with the Commons in their Amendments Nos. 80 to 85.

Lord Rooker: My Lords, I beg to move that the House agrees with the Commons in the said amendment. As already discussed, Clause 39 allows the national authority to grant consent for works on common land, subject to specific modifications or conditions. As amended by Amendment No. 85, the clause allows the person carrying out the works to apply to vary or revoke any such modification or condition. The amendment would enable regulations to set a time limit for making such an application. We do not intend this clause to provide an indefinite opportunity for challenging the national authority's determination. It is important to achieve clarity as soon as possible about the terms on which a consent is given. We plan to make regulations allowing six weeks for an application to be made, which is in line with statutory precedents in cases of this type. That will bring to an end promptly any uncertainty about the terms of a consent, so it is highly desirable. If the consent holder is unhappy about consent terms, he should challenge at outset, not later on. If further works were proposed beyond the scope of the existing consent, a fresh application for consent would be needed.
	I have notes on Amendment No. 86A which of course I will not move or speak to. However, I will have to resist it in due course.
	Moved, That the House do agree with the Commons in their Amendment No. 86.—(Lord Rooker.)

Lord Livsey of Talgarth: moved, as an amendment to Commons Amendment No. 86, Amendment No. 86A?:
	86A: Clause 39, line 1, after "limit" insert "and timetable"

Lord Triesman: My Lords, I beg leave to repeat a Statement made in another place by my honourable friend Dr Kim Howells. The Statement is as follows:
	"In these very difficult times for the Middle East, I welcome this chance to update the House on British activity and policy. The United Kingdom is gravely concerned by the escalating crisis in Lebanon. Not only does it pose a serious threat to the relationship between the Israeli and Lebanese Governments but it threatens the wider security of the region, and it is causing huge harm to the civilian populations, with casualties mounting on both sides. We offer our condolences to the Governments of Lebanon and Israel for the losses they have suffered, and to the families of all those affected. "The United Kingdom is committed to helping to resolve this crisis. The Prime Minister has spoken to Lebanese Prime Minister, Fouad Siniora, and the Foreign Secretary has spoken to the Israeli Foreign Minister, Tzipi Livni. We appreciate the pressures that both Governments are under at this very difficult time, but both have a responsibility to help to end this crisis. "Our priority must be to create conditions to allow a ceasefire and to explore quickly how the international community might facilitate a peaceful, diplomatic resolution, guaranteed perhaps by the deployment of an international force into the area. Ultimately, the only way to achieve a sustainable solution to the situations in both Gaza and Lebanon is to address the root causes. That means getting back to a state where negotiations can resume on the basis of the quartet road map. With that objective in mind, the Prime Minister is discussing the crisis with his G8 counterparts at the G8 summit in St Petersburg."The EU High Representative, Javier Solana, and a UN team representing Secretary-General Kofi Annan are in the region as we speak. We fully support their efforts to broker an end to this conflict, and we are offering both teams logistical assistance on the ground. We are urging all involved parties to do all that they can to address this crisis and to prevent the situation from worsening. We reiterate our call for the urgent release of the kidnapped Israeli soldiers and for an end to attacks on Israeli towns and cities. We urge all those countries with influence over Hezbollah to play their part."We are very concerned about the role of Syria and Iran. Through their support for Hezbollah, they are encouraging extremism, threatening the stability of the region and putting peace in the Middle East further out of reach. Israel has every right to act in self-defence, but we and the international community have urged it to act in proportionate and measured ways; conform to international law; avoid civilian death and suffering; and refrain from acts that destabilise the Lebanese Government. Disproportionate action only escalates an already dangerous situation. "This crisis also underscores the need for the full and sustainable implementation of Security Council Resolution 1559, including the importance of the Government of Lebanon exercising its full authority throughout Lebanese territory. That means being able to control the area between Beirut and the Israeli border, an area cursed by militias such as Hezbollah, whose political masters reside in Damascus and Tehran. "Our most pressing concern in this crisis is the welfare and safety of the thousands of British nationals in Lebanon. We are working day and night with our EU and other international partners towards a properly organised and, above all, safe arrangement to help British nationals and others for whom we have consular responsibility and who want to leave Lebanon. "With the Ministry of Defence, we are working closely on how to help those British nationals who want to leave to do so safely. The House should not underestimate the scale of this task or the numbers involved. Royal Navy destroyers, the York and the Gloucester, are now offshore and others, including HMS Illustrious and HMS Bulwark, are heading towards the eastern Mediterranean. A rapid deployment team from the Foreign and Commonwealth Office has arrived in Beirut to assist British nationals, together with a military reconnaissance team that will carry out detailed planning for a possible evacuation. "We judge that departure by sea is the safest and most practical option for British nationals wishing to leave. We are already using British helicopters to transport some of the more vulnerable British nationals to Cyprus. We were able to make use this morning, for example, of UK helicopters, which brought in the rapid deployment team and EU High Representative Solana to help about 40 of the most vulnerable British nationals to leave. "For the moment, we are advising British nationals in Lebanon to stay put, exercise caution, keep in touch with the embassy and heed local advice. British nationals in Lebanon have been informed that they should listen to the BBC and other English-language broadcasts. Our embassy in Beirut is advising British nationals in Lebanon who want to leave to get ready for departure at short notice, including by having travel documents in order. "We have deep concerns also about the situation in Gaza. The escalation in violence since the 25 June attack at the Kerem Shalom crossing has caused great suffering on both sides and mounting casualties. "We reiterate our call for the immediate and unconditional release of Corporal Shalit. We also condemn the continued rocket attacks from Gaza on Israeli towns. We have called on the Palestinian Authority to prevent all terrorist attacks, including these rocket attacks, and to work for the release of Corporal Shalit. We welcome the work that President Abbas is doing to achieve this. Let me repeat that, while we recognise Israel's right to defend itself and to secure the release of Corporal Shalit, we insist that its actions should be proportionate and in accordance with international law as we, the G8 and the EU have made clear. "We continue to have serious concerns regarding the current humanitarian situation in Gaza. Israeli military actions have targeted key roads and bridges and damaged the Palestinian civilian infrastructure. We continue to urge Israel to take action to allow the full provision of basic services to the Palestinian people. We welcome the agreement to open the Rafah crossing on 18 July and hope that all those currently stuck on the Egyptian side of the crossing will be able to enter Gaza. Cases such as these should be resolved as quickly as possible through negotiations. The EU mission at Rafah has played a key role in bringing the sides together and continues to perform an important function under difficult circumstances. We have also made some humanitarian support available to those who have been stuck at the border. "We continue to have concerns about the detention of members of the Palestinian Government and legislature on 29 June. Those detained should be accorded their full legal rights and be either charged or released."We fully support Egyptian efforts to mediate between Israel, the Palestinian Authority and the militants currently holding Corporal Shalit, and we have offered our assistance. Egypt plays a key role in the peace process and we will continue to work with it. We have also pressed Syria to use its influence on Hamas. I can assure the House that the United Kingdom will continue to work to resolve this crisis. "We need an urgent end to the current crisis, although we know, of course, that real peace can only come through a lasting settlement. As the Prime Minister has made clear in St Petersburg, our priority must be to create the conditions for an early resumption of negotiations. The events that we have witnessed around Israel's borders over the past few days have reaffirmed the great urgency of constructing a lasting settlement and the perils of assuming that, somehow, there is a military solution to this historic conflict. Negotiation is the only viable way to move the peace process forward."Our goal remains a negotiated two-state solution achieved through the road map. We must all find a way to work through the current crises to get back on that track".
	My Lords, that concludes the Statement.

Lord Howell of Guildford: My Lords, I am grateful to the Minister for repeating this important and somewhat gloomy Statement. This is a sombre moment, not just for the Middle East peace process and the road map but for the wider stability of the whole region and, indeed, of the world and for all of us. As the fighting expands, it can obviously have an impact far beyond either Lebanon or Gaza. It can have an impact on global stability, on oil prices—we remain far too dependent on oil—and on financial markets. Indeed, it is already doing so.
	In the face of the immediate crisis, I am sure that the Minister will agree that there is little point in spending time finger-pointing about who started this particular round of horror and for what reason and so on, but there is every need to halt the spiralling cycle of killing, rocketing, bombing and kidnapping that has been going on.
	We need to ask, first, about British nationals who want to leave. The Minister gave the position very fully in the Statement. Can British nationals get easy access with their travel documents to the authorities who can arrange departure by sea? Have the Israelis given a specific all-clear that there will be no molesting or interference? Are further helicopter airlifts possible, given the obvious danger of the Hezbollah operatives, who are all over Lebanon—not just in the south—and could inflict damage?
	Is the Minister aware that Hezbollah has been planning this attack for five months, as confirmed by comment in Beirut, and that it has been shipping in huge volumes of weapons? I gather from the latest estimate from both sides and not just the Israeli side that those weapons include 12,000 Katyusha missiles, which have a range of about 20 to 25 kilometres, and other missiles which, in some cases, have a considerably longer range? In all this, Hezbollah is getting full personnel support from Iran's Revolutionary Guard, who appear to be present in southern Lebanon in some numbers. The aim of this whole operation, planned many months ago, is to raise tension and kill Israel's citizens, which it is succeeding in doing.
	Does the Minister also agree that, whether or not one says that it is provoked, the immediate Israeli response not only is inclined to be—indeed, is—disproportionate but can also be said to be flawed? It is very difficult to understand. Can the Minister explain how bombing the life out of Beirut, closing the airport, frightening the lives out of Lebanese citizens as they flee and, in some appalling cases, even gunning them down as they flee, can possibly make it easier for the elected Lebanese Government—a young Government struggling to do their best—to grapple with Hezbollah, the serpent in Lebanon's midst? Those Lebanese citizens might be said to have been on the same side as Israel, or at least to have had the same enemy—namely, Hezbollah. Lebanon has been trying for a year to handle the state within a state, and the bombing will make that much harder. I hope that, in our discussions with the parties, we will point out that fact.
	Is not one very serious conclusion from the past few days—it is an ominous conclusion for the very future of Israel—that, when it comes to weapons technology, the Israelis may have lost their famed and hitherto unchallengeable superiority? There has been a colossal miniaturisation of very powerful weapons, combined with vast cash resources from oil-rich Iran flowing into weapons and support for Hezbollah. If it has not already done so, that will have an equalising military impact, as the Israeli military is now finding out to its dismay. Does that not suggest that, in the end, the Israelis will have to talk and negotiate and perhaps discuss the release of prisoners and detainees, rather than fruitlessly bombing and shelling?
	As to the Gaza situation—the other ugly pattern of development—here we have a major humanitarian crisis. As in all modern advanced societies, but in developing ones as well, the effect of cutting off electricity by bombing the generating stations is to cut off the water supplies, medical supplies, traffic controls and, indeed, the entire pattern on which an urban existence depends. What can we do to ensure that assistance continues to get through to the Palestinians and that the electricity supplies are further restored? I gather that there has been some restoration and I hope that there can be more.
	Meanwhile, in St Petersburg, the G8 leaders are broadly saying—I do not want to reduce it to a cliché—that they hope that better counsel will prevail. They have talked about an international force returning to the Lebanon or expanding in the Lebanon/Israel border area. One has to ask: what on earth can that do while the fighting and the missile firing continues? The answer is, of course, very little. The time for that may come, but it is not the solution to the immediate killing and destruction.
	Is the prime, direct task now for our Government and other Governments to tell the Israelis that overreaction will be counterproductive and that if they make enemies of Lebanon, their neighbour and the only other democracy in the region, that will lead nowhere, although it may already be too late for that? Should not we tell Damascus and Tehran that their aid to aggression will lead to their own destruction and must be halted? In the end, their people will suffer. Should we not also urge Israel and the whole international community, including Russia, which is a key player in this, to give maximum and continuing support to the lawful and elected Governments in Beirut and in Gaza and, through them, to the people? Should we not all also support the right of Israel to exist without constant, murderous attacks, which it finds now, even though it believed that they would cease when it withdrew from Gaza and the Lebanon? Of course, above all, Governments should support the right of Palestinians to have back their lands and country and to live there in peace. Perhaps we could have an early debate to mobilise the considerable knowledge and expertise in your Lordships' House and to analyse what is possibly the beginning of a far greater crisis.

Lord Triesman: My Lords, I thank both noble Lords for their observations. There is a global risk of instability in oil and finance markets. I also agree with the noble Lord, Lord Howell of Guildford, that tonight would not be the best occasion for a post mortem or finger pointing. That would not be useful at all.
	I start with the noble Lords' questions about the evacuation. The efforts of the Ministry of Defence and the Royal Navy have been quite exceptional. I pay tribute to them in this House this afternoon. My right honourable friend Adam Ingram has taken the role of overall military co-ordination, and Brigadier Jacko Page is on the ground ensuring that the arrangements work. I have mentioned that two destroyers are offshore; each can take about 350 people on deck. The aim would be to get people to Cyprus in a 12-hour crossing. HMS "Illustrious" and HMS "Bulwark" are, as I have said, going towards the eastern Mediterranean. Between them, they can lift many thousands of people; they are huge vessels. I hope noble Lords will allow me to say only that there are other ships on the way, not how many. We believe that the bulk of this force will be offshore by Wednesday evening.
	We are trying to arrange for coaches to get people from designated points to the dockside. That should be a secure arrangement, which is one of the reasons a military team is scoping it all. We are in close touch with a large number of people. We cannot tell exactly how many British citizens were in the Lebanon when this started—that applies to those with dual nationality in exactly the same way as single nationality. The numbers could exceed 10,000. We do not know the numbers of other nationalities for which we have undertaken some responsibilities, such as the Australians and Canadians.
	Briefly, a large number of vessels are queuing to get in. The port sides are damaged. In some cases, the vessels—aircraft carriers, for example—have extremely high sides. You cannot simply put up walkways. Getting people off the quayside and on to these ships will be a difficult logistical task, but work is going ahead rapidly. There is no panic; the Royal Navy being visible offshore has given a good deal of reassurance, including to people to whom I have been speaking in the past 24 hours. I hope I made the point that there is a lot of coordination with other nations.
	To move on to some wider political issues, the Government, and the Governments of other countries, are aware of the rapid armament of Hezbollah. I say to the noble Lord, Lord Wallace, that Hezbollah and Hamas engage in terror: they are terrorist organisations that pursue policies of terror, which puts stability in the region at great risk. It would be foolish to think otherwise. However, despite the fact that they do so, it is vital that the Israeli Government respond in a way that is not disproportionate. The G8 called on Israel,
	"to exercise utmost restraint, seeking to avoid casualties among innocent civilians and damage to civilian infrastructure and to refrain from acts that would destabilise the Lebanese Government".
	Plainly, any further destabilisation will make the whole process worse. One of the consequences of any further destabilisation will be that it will be more difficult to resume any kind of peace process. I agree with both noble Lords that the greater the instability created by that route, the less likely it is that Israel will live in security with its neighbours. I do not see that there can be any disagreement about that. However, it needs to be understood that rockets cannot be continually fired into a territory over long periods of time without people in that community saying that they expect their government to defend them, just as any government would defend them. I do not find appealing the argument about proportions on both sides. It is not a relativistic argument; people should stop killing civilians.
	Both noble Lords asked about assistance to the Palestinians. We are working to provide money through a mechanism that we believe to be reliable. We have been contributing growing amounts through the temporary international mechanism since 17 June and another £12 million was pledged recently. We believe we must support the Palestinian people and help to provide for their basic needs. On 25 April, DfID announced a payment of £15 million through the UNRWA, and the United Kingdom has given £147 million to the Palestinian people since 2001. Our intention is to try to make sure that the aid continues and that the mechanism is used effectively.
	It is also essential that the connection to the Israeli grid, which has now begin, continues. It supplies some power, but it is not enough. Damage to the power station has resulted in everything that was described by the noble Lord, Lord Howell. Pumping sewage and many other services are critical for ordinary, decent life and we look to see the repairs to that system completed as fast as possible. In the mean time, it is right that connections to the Israeli grid should be made to improve the input of power, which currently varies between three to 18 hours a day.
	I do not accept that the G8 was just words. An unusual group of people came together and agreed on a forceful statement, which would not necessarily have happened in other circumstances. All these things suggest the desirability of an early debate, and it is for the business managers of the House to consider that. I am not averse to it, which I hope adds a word of encouragement without disrupting the work of the business managers. I believe that a good, open, frank debate on this matter would be extremely useful.

Lord Clinton-Davis: My Lords, on Gaza, does my noble friend agree that food, fuel, natural gas, medicines and electricity generators have passed from Israel to Gaza in recent days? Does he further agree that although evacuation from Lebanon has been mentioned, there should equally be evacuation plans—possibly not carried out immediately—of British nationals from Israel?

Lord Phillips of Sudbury: My Lords, does the noble Lord accept that the continuing colonisation of the West Bank, so that there are now nearly half a million Israelis living in the West Bank—a colonisation that goes on month by month and year by year in complete disregard of the road map requirements—is a provocation for the Palestinians so intense that, frankly, one cannot be surprised that there was an increase in rocket firing from Gaza and the West Bank? Please will the Government accept that, unless something is done to stop building in the West Bank, which now is proposed virtually to encircle East Jerusalem, the last foothold of the Palestinians in Jerusalem, everything else is hot air and evasion?
	As all of us are desperate for Israel to live behind secure borders, the Palestinians to live in a state of their own and the Middle East to cease to be the infection of the world's political bloodstream, I urge the Government to get beyond hand-wringing and, frankly, soft words and, if necessary, to break with the United States because, at present, the United States shows not the slightest inclination to accept that fundamental reality.

Lord Triesman: My Lords, I can hardly think of a prescription more likely to cause devastation to any prospects of peace than the quartet breaking up. It represents one of the most serious, united international forces to try to ensure that some form of negotiation continues. Before anyone says, "It all fails", let me say that this antagonism has gone on for decades, across generations. With great respect, the idea that it will all be turned around by the quartet in a couple of years and without substantial work is unrealistic.
	I have a good deal more sympathy with the points made about the West Bank. I would not use the words that have been used, but it is true that some of the building in the West Bank, certainly in those parts east of Jerusalem that would make a contiguous and viable Palestinian state entirely impossible, is contrary to international law, as is the root of the war. I have said so from this Dispatch Box, to Israelis in the Israeli Government and to their diplomatic representatives, and I repeat it, if it needs to be repeated, here today. I do not know what is meant by "something should be done to stop building east of Jerusalem", short of detailed persuasion and key arguments being deployed about the future of peace and the two-state solution, to which we remain 100 per cent committed. I do not know what else is being contemplated.
	All the key forces, including the United States, must be brought to bear to secure a return to the road-map negotiations. Anyone, at the UN or elsewhere, who is not disposed to violence as the first tool for dealing with this, believes that those negotiations are the only route to securing a peaceful settlement.

Lord Foulkes of Cumnock: My Lords, does my noble friend agree that, given the currently extremely dangerous situation and the danger of escalation, it does no good whatever to join in the blame game, as we have just heard, either of Israel or, as I would prefer, of Iran and Syria for financially supporting Hezbollah? I expressed my concern to the Iranian Foreign Minister at the weekend. It does not help to have the kind of academic discussions about the general situation that we have heard from some quarters. The G8 is now supporting the potentially viable solution of a ceasefire and an international stability force. What are the Government doing to get the support of other countries—we have the support of the Americans—and from other parties in this country for that solution, which is the only one for dealing with the immediate problem?

Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time. In addition to covering the substance and main clauses in the Bill, I will address some of the issues raised by the report of the Economic Affairs Committee on the Finance Bill 2006. I also look forward to the maiden speech of the noble Lord, Lord Burnett; this is a good debate in which to start.
	Let me first set the scene. In March, my right honourable friend the Chancellor outlined in the Budget the Government's vision for Britain. The Government believe in a modern and fair tax system which keeps pace with the changing world, encourages work and saving, and ensures that everybody pays their fair share in delivering world-class public services. The long-term decisions taken by the Government—giving independence to the Bank of England, new fiscal rules and a reduction in debt—have created a strong platform of economic stability. The international economy has in recent years been affected by geopolitical uncertainty, rising oil prices, large current-account imbalances and shifting exchange rates between the US, Asia and Europe. Despite this, the UK has low and stable inflation and its economy is experiencing its longest unbroken expansion since quarterly records began, with 55 consecutive quarters of GDP growth. In fact, in the nine years since the Government came to office in 1997, UK GDP growth has risen by around 26 per cent. By contrast, in the nine years to 1997 the economy grew by 15 per cent. Based on internationally recognised measures of economic stability, the UK has moved from being last for stability of inflation among G7 competitors before 1997 to now being described by the OECD as a "paragon of stability". The IMF has emphasised that the UK's macroeconomic stability remains remarkable, being supported by,
	"sound policies implemented by strong institutions and underpinned by monetary, fiscal and structural policy frameworks that have increasingly instilled confidence in the authorities' conduct of macroeconomic policies".
	Alongside that economic record, this finance Bill delivers measures which enhance productivity, enterprise and competition; help the environment; ensure that the tax system is fair and targeted; tackle tax fraud and avoidance and prevent market distortions; and ensure that the tax system can respond to the challenges of globalisation.
	I should like to say a little about the debate on the perceived complexity in this Bill. These measures are designed to be as simple as possible while protecting revenue, encouraging growth and enterprise, and addressing market failures. Complexity is an issue that the Government take seriously. Tax systems in the modern world are inherently complicated, reflecting the complex economic and social realities in which we live. Recent research carried out by KPMG found that the UK tax system imposes administrative burdens of only around 0.41 per cent of GDP, comparing favourably with other countries. However, HMRC has been set challenging targets to reduce even further this burden. It will reduce the time spent dealing with forms by 10 per cent and with inspections by at least 15 per cent over the next five years. The Government have a strong record of engaging with business and intend to continue this dialogue. Large proportions of the Bill follow extensive consultations with business to ensure that the legislation is modernised to reflect the changing business environment. The—

Lord McKenzie of Luton: My Lords, I do not have those data to hand. But, as I can, the noble Lord can look up the record and read the debates. I am sure that he has.
	The Bill includes measures responding to those consultations: for example, we are expanding R&D tax credits, establishing a new film tax credit and creating real estate investment trusts. Stability in the tax system is key to economic security and we have undertaken a number of tax reforms to improve productivity, promote sustainable development and tackle market failures in the economy. This finance Bill contains further measures to support the sustainability of the tax system. It allows business to be able to plan for the long term on the basis of low and stable tax rates.
	I turn now to the main areas covered within the recently published Economic Affairs Committee report. The Government are committed to maintaining a fair tax system that clamps down on tax avoidance. Clause 92 of the Bill amends Section 420 of the Income Tax (Earnings and Pensions) Act 2003 and is designed to counter arrangements which use options over shares and securities to deliver employment reward with the purpose of avoiding tax and national insurance contributions. The Government are also intent on tackling marketing tax avoidance schemes to ensure that everyone pays their fair share. Clause 76 goes a long way towards securing that objective in closing down a number of avoidance arrangements involving financial products.
	I was pleased to see in the committee's report that there is a broad consensus in the private sector that the tax avoidance disclosure rules are working well, and that the private sector has a positive view of the consultation process in this area. I am aware that concerns have been raised over the scope of some of these provisions and their possible impact on genuine employee share schemes and the consequent uncertainty for business. Let me confirm that those using genuine employee share schemes that are either tax-advantaged as sanctioned by Parliament or fully taxed as value passes to the employee have nothing to fear from the changes made by Clause 92. Outside the Government's special tax advantage schemes they should be expecting the full benefit delivered to the employee to be properly subject to income tax and national insurance contributions. Indeed, the evidence from annual employer returns since 2003 is that genuine taxed employee share plans continue to increase in numbers.
	This is a proportionate response to continued avoidance in this area and I was glad to see the Economic Affairs Committee report recognise that the operation of the tax avoidance disclosure regime has served to create a behavioural shift against wide-scale adoption of more aggressive and sophisticated tax avoidance schemes. Neither the Government nor the Opposition want to see attacks on the tax system by criminals, and I know that noble Lords will lend their support to measures which prevent such attacks.
	Clause 19 enables a change in the VAT accounting provisions for sale of certain goods to tackle missing trader intra-community fraud. This fraud is an organised criminal attack on the VAT system which in 2004-05 is estimated to have cost up to £1.9 billion in stolen VAT. The fraud relies on contrived movements of high-value goods—typically mobile phones and computer chips—which are often moved in a series of carousel circuits between the UK and other EU member states. The tax loss occurs when the VAT charged on the initial sale of the goods in the UK is not paid to HMRC but can still be reclaimed by the purchaser. Clauses 20 and 21 clarify the scope of the existing power for HM Revenue and Customs officers to inspect goods and directions to keep records for VAT purposes. I welcome the positive remarks in the Economic Affairs Committee's report on the Government's efforts to tackle missing trader intra-community fraud.
	The Government want to see a continuation of a fair and targeted inheritance tax system and are committed to providing certainty for families in this area. The Bill proposes increases in the inheritance tax threshold to £312,000 for transfers of value on or after 6 April 2008, and to £325,000 for transfers of value on or after 6 April 2009. The increased tax-free threshold of £285,000 for 2006-07 means that the number of taxpaying estates will be about 37,000 in the current tax year. Despite concerns about the numbers of people affected by inheritance tax, it remains the case that only around 6 per cent of the estates of those who die in 2006-07 will pay any inheritance tax.
	The Budget announced new rules for two types of trust—known as "accumulation and maintenance" and "interest in possession"—that are currently exempt from the inheritance tax charges that already apply to other types of trust. It has become clear that some wealthy individuals are using these types of trust primarily as a way to shelter their wealth from inheritance tax. The Government believe that it is unfair for people to gain a tax advantage by using trusts in this manner.
	It has been said that there should be no difference between the inheritance tax due on setting up a trust and giving assets away. I disagree. People who set up trusts continue to control how the money is used. That is not the same as an outright gift and there is no reason why they should be taxed in the same way. Therefore, we have taken action to ensure that the exemptions from IHT trust charges apply only where trusts are set up to cater for certain prescribed circumstances—that is, broadly, where they provide for the disabled or are set up on death, including for spouses and bereaved minor children. In all other cases, the normal charges for trusts will apply, preventing them being used to shelter wealth from inheritance tax.
	There has been a lot of speculation in the media about this measure and the Economic Affairs Committee raised several concerns. For the avoidance of doubt, I can confirm a number of things. Where someone dies without having made a will, their bereaved spouse or civil partner will continue to get spouse relief, and spouse relief will continue to be due when an "interest in possession" trust is set up under a will giving a life interest to a bereaved spouse or civil partner.
	Where a trust is set up by a parent on their death for a bereaved minor, the trust charges will begin to accrue only from the child's 18th birthday. People will still be able to set up trusts that run on past a child's 18th birthday if they wish to do so. Most trusts that come within the new rules will not have any inheritance tax to pay. Inheritance tax will be due only from trusts that have amounts in excess of the threshold of £285,000, rising to £325,000 by 2009. This allowance can be in addition to the inheritance tax threshold that applies to a person's estate when they die. I reject statements that these changes will affect millions of people.
	I read with interest the Economic Affairs Committee report's comments on the absence of consultation. The Government always consider the benefits of undertaking consultation and try to make as much room as possible for advance preparation ahead of changes to the tax regime. However, this will not always be possible—for example, in cases like this, where there is a significant risk of large-scale forestalling.
	The Government recognise that trusts have an important role to play in helping people to manage their affairs, but we believe that the tax system for trusts should not provide artificial incentives for setting them up. Over the past few years, we have made a number of changes to close loopholes in the inheritance tax regime and the tax regime for trusts to ensure that people pay their fair share of tax. Alongside this work, we have also undertaken a programme of modernisation of the tax system for trusts, making changes to protect vulnerable people while ensuring that trusts are not used to achieve an unfair tax advantage.
	Let me talk briefly about some other important areas in the Bill that are not covered in the Economic Affairs Committee's report. The research and development tax credit is a key part of the Government's strategy to raise business research and development, as part of our wider aim to boost science and innovation in the economy and help secure the UK's long-term prosperity. The scheme was introduced for small and medium-sized enterprises in 2000 and extended to all companies in 2002. To date, there have been nearly 22,000 claims for R&D tax credits. Support claimed under the scheme amounts to just under £1 billion for SMEs and almost £1.8 billion of support overall. The Government want to maintain a prosperous and world-class UK film industry, so we have designed a new and more modern tax treatment for films, one that closely reflects contemporary film-making practice. It is a more generous incentive for film producers and better targeted at the makers of culturally British films.
	Real estate investment trusts are a new tax regime for the UK, designed to remove inefficiencies, which currently persist in both the commercial and residential property investment markets. Property companies are taxed at the corporate level on their rental income, but for many investors, such as those in pension funds, the overall tax effect of investing indirectly through a property company is higher than if they owned the property directly. It is this tax distortion that the Government seek to address, which will in turn help to improve the efficiency of the property investment market in the UK.
	In summary, the Government are striking a balance between encouraging enterprise yet discouraging avoidance, and between building a favourable climate for business yet ensuring that the tax system is fair and seen to be fair. This Bill demonstrates the Government's commitment to the continuing development of a modern and fair tax system, and I commend it to the House.
	Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)

Lord Wakeham: My Lords, I am not sure what is happening in the test match but in this debate, for the second year running, the batting order has been altered by general agreement. It may be helpful if I say what I have to say at this stage, as I have the honour to be chairman of the Economic Affairs Committee and the sub-committee that has looked at the Finance Bill. This is the fourth annual inquiry into the Finance Bill that the Economic Affairs Committee has carried out. I am privileged to have been associated with all four—in the case of the last two, as chairman of the sub-committee. I am also looking forward to hearing the maiden speech of the noble Lord, Lord Burnett, in due course.
	The response from your Lordships' House and another place has been generally supportive of our work, which has been recognised as significantly assisting informed debate in Parliament. I thank the members of the sub-committee, who had to work extremely hard over a relatively short period. There were lots of meetings—several a week—and a lot of briefing, and I am very grateful to them for taking on that burden. I also thank our Clerk, Robert Preston, who is moving on to other duties, and our special advisers, Leonard Beighton and Brian Shepherd, who gave us very good service and worked extremely hard.
	Of late, however, the Government have expressed concerns about our report. These concerns are based on a misunderstanding not only of what the sub-committee has been doing but, perhaps more important, of the distribution of powers between your Lordships' House and another place. So I should begin by discussing those powers and laying those concerns to rest.
	The Government have stated in evidence to the Joint Committee on Conventions that the existence of the Finance Bill sub-committee risks your Lordships' House intruding on Commons financial privilege. Indeed, the Leader of the Commons went further in giving oral evidence to the Joint Committee, suggesting that,
	"the establishment of a Finance Bill Sub-Committee ... by this House seems to me to be a quite deliberate claim to additional powers over a Bill in respect of which this House is not supposed to have any power at all".
	He added:
	"I am wholly opposed, and so is the Government as a whole, to the Lords transgressing into areas of taxation".
	Let me set the record straight. Erskine May is clear that, although this House may not amend supply Bills, such as the Finance Bill, it is perfectly entitled to debate them, as we are doing today, and to refer them to Select Committees for examination. That is made clear on page 918 of Erskine May, if anybody has any doubts about it.
	It is difficult to see what we are doing that the Government consider to be so wrong. Indeed, when the initiative was taken four years ago to set up the sub-committee, your Lordships' House undertook a self-imposed restraint that the sub-committee's inquiries should steer clear of the rates or incidence of taxes and limit themselves solely to matters of tax administration, clarification and simplification. I should add that both the Clerk of the Parliaments and the Clerk of the House of Commons were consulted at the time, and gave their views that the establishment of annual sub-committees along these lines to inquire into Finance Bills would not disturb the distribution of power between the two Houses. So I have to say, and I have said so in evidence to the Joint Committee, that I reject completely the notion that we have been in any way acting improperly in inquiring into these Bills. We have been exercising with considerable restraint the rights of your Lordships' House going back for a very considerable length of time.
	In four years, here has not been a single occasion on which party bias has played a part in our sub-committee's deliberations. We have commended the Treasury and Her Majesty's Revenue and Customs and endorsed their explanations or proposed changes of tax at least as often as we have felt it necessary to criticise what they have done. Indeed, it is fair to say that we have provided a platform in some instances for the Government to clarify their proposals to Parliament and to the public at large. I accept that the Government may occasionally not feel too comfortable with our probing, but that is part of the role of Parliament—to hold the Executive to account. However, they cannot fairly accuse us of exceeding our powers.
	Let me move on to the Finance Bill and my committee's report on it. The Bill is substantial, so it was necessary for us to be selective. We chose to look at two areas of taxation that we had considered before and to which new measures were being added; namely, measures to counter the avoidance of direct tax and measures to crack down on VAT fraud. We also chose one new measure: proposals to change the inheritance tax treatment of trusts. We were generally happy with the strategy that the Government are pursuing to follow up their measures to counter tax avoidance. We were told both by tax professionals and by officials that they felt that there had been something of a behavioural shift as a result of earlier measures in this direction and that consequently there was less widespread adoption of the more aggressive and sophisticated tax avoidance schemes. The Minister referred to that in his speech and I entirely agree with what he said. Our one concern was about the need to achieve greater certainty for taxpayers so that normal and innocent commercial activities do not become inadvertently caught.
	Similarly, we welcomed Clauses 19 to 21, which were designed to strengthen the powers of Customs to deal with the missing trader intra-community fraud—the "carousel fraud". It appeared to us that the measures introduced in the Finance Act 2003 had gone some way towards stamping out this phenomenon, but they simply had not done the trick. We very much hope that the latest measures will be successful. It is very important that progress should be made in this area. The scale of losses at the moment is substantial and could well be increasing. Though newspaper reports have claimed that they could be as much as £5 billion a year, the Treasury's estimate of between £1 billion and £2 billion—which it is to be hoped is more accurate, and I accept that it is—still represents a substantial amount of money that could be put to good use if collected.
	The proposals regarding the inheritance tax treatment of trusts are to be found in Clause 157 and Schedule 20. We noted first that, while consultations had been going on around modernisation of the taxation of trusts generally for income tax and capital gains purposes, there had not been consultation on the Government's specific proposals to change the inheritance tax rules. The argument deployed by the Treasury was that, had there been consultation on these proposals—the Minister made these points— there would have been forestalling action. We believe that this was a pity. Consultation usually leads to better-crafted legislation.
	While we accept that there might be circumstances in which the need to avoid forestalling precludes normal consultations, we did not hear convincing evidence to show why in this case counter-forestalling action could not have been taken that would have allowed consultation to take place. For example, as one of our witnesses suggested, the Government could have announced what they proposed last December or January on the basis that consultation would take place but that the legislation, when enacted, would be effective from the date of the announcement. Indeed, I see that in another place the Paymaster General quoted this witness as stating to us that there would have been forestalling if there had been consultation. For the record, the witness actually said, and I quote from the record of evidence:
	"I do think forestalling would have been a problem but there are ways in which it could have been tackled".
	We received different estimates from officials and private sector professionals about the number of people likely to be affected by these proposals. Some professional bodies from which we took evidence believed that at least a million—probably more—wills would be affected and would need to be reviewed, and perhaps amended, at a cost of between £400 to £700 per will. Officials took a different view. They told us that 94 per cent of estates were not in any case subject to inheritance tax and that, while some people might need to review their wills, the number would be nothing like those that had been suggested. It was impossible for us to say who was right, but we remain concerned at the extent of the disagreement on the impact of these measures. The amendments made to the Bill during its passage should have reduced the need to review wills, but we remain without an agreed estimate of the size of the burden.
	We accept that there may have been tax avoidance through the use of trusts and that the Government are fully entitled to tackle this, but we are less sure whether the route adopted was the right one. There was a lack of clarity about the purpose of the changes. Were they primarily about preventing avoidance, as Ministers suggested, or were they simply part of an alignment and modernisation process, as the papers published on Budget day implied? We did not receive a clear answer. As the Government have not made clear what they were trying to achieve, we remain uncertain whether the policy of neutrality towards trusts has been altered. The measures in the Bill will impact on a wide range of trusts, which are used not necessarily for tax avoidance but as part of the responsible stewardship of family assets. The measures could make such stewardship less certain and more complex.
	Overall, we did not feel that the introduction of measures to change the inheritance tax treatment of trusts had been handled well. We felt that they could have been handled much better. The Government are right about the avoidance of direct tax and about the VAT problem, which is very serious, but we are very critical of the way in which they have handled the changes to the inheritance tax treatment of trusts.

Lord Barnett: My Lords, I am delighted to have the opportunity of congratulating the noble Lord on his excellent maiden speech. Obviously, there are not too many Members of your Lordships' House who are as expert as he is on trusts, but certainly the Finance Bill Sub-Committee would be delighted to see him participating both in our committee and in our debates. I would say that even if he did not have a name that is so similar to my own—there is only one letter that is different. The noble Lord's excellent maiden speech dealt precisely with the issue that we are debating, which is not always the case with maiden speeches. As a solicitor practising in taxation, he will be a valuable Member of your Lordships' House and of our Select Committees. I am delighted to welcome him, and again I congratulate him on an excellent maiden speech.
	I want to follow a few of the points made by the noble Lord, Lord Wakeham—the excellent chairman of the Economic Affairs Select Committee and the sub-committee in which I was fortunate to participate. He referred to the criticism by members of the Government of our work as a sub-committee. I want to add a few words on that because I strongly support what the noble Lord, Lord Wakeham, said. I refer, in particular, to evidence given to the Joint Committee by my right honourable friend Jack Straw. What he said was so wrong that I feel I must mention it briefly. The noble Lord, Lord Wakeham, quoted some of it but it is worth quoting again. He said:
	"I am concerned, and I have to say Treasury Ministers still more so, that the establishment of the Finance Bill Sub-Committee of the Lords Economic Affairs Committee seeks to circumvent the financial privilege of the Commons. It is seeking to insinuate a function for the Lords which was never envisaged before by the passage of the Parliament Act 1911 or during the rest of the 20th century. It is our judgment that the existence of the Finance Bill Sub-Committee is incompatible with the conventions which over the running of matters are dealt with by the Commons".
	Personally, I can forgive my right honourable friend because he should not be doing that job; he should still be Foreign Secretary. He was wrong on many accounts but I want to refer specifically to two of them.
	The first concerns the existence of the sub-committee. I understand that it was set up with the agreement of the Cabinet. The Leader of your Lordships' House at that time—the excellent and unfortunately too-early-deceased Lord Williams—spoke in the Cabinet and got agreement for such a sub-committee to be set up.
	The second point is more important as it relates to circumventing financial privilege. I hate to say this about my right honourable friend but what he said was nonsense. Clearly, he has not had time to read any of our sub-committee reports, otherwise he would not have dreamt of making such a statement. As the noble Lord, Lord Wakeham, said, we successfully avoid circumventing the Commons in every conceivable way. However, if my right honourable friend had spoken to any senior officials at the Treasury or HMRC, he would have been told how much they recognise the importance of our sub-committee's work.
	In a way, that was brought out by the intervention of the noble Lord, Lord Forsyth, who I am sorry to see is not in his place. He asked the Minister how long the Commons had debated the Finance Bill, which is more than 500 pages long. He should be aware, as should any of us who have had a little experience of matters in the other place, that Oppositions of all political parties never debate Finance Bills properly. That is precisely why these Bills get bigger and bigger—they are never properly amended. That is true not only under this Government but, as the noble Lord, Lord Wakeham, will be aware, under all Governments. Oppositions tend to choose for debate the sexy party-political issues and they virtually ignore the rest. That is where the value of our sub-committee lies. We do constructive work, as anyone would know if they read our reports and the evidence that we take. They would recognise, as officials do, how important our work is. I know that the Chancellor does not like interference from anyone and certainly not from the House of Lords, but if he would only recognise the value of our sub-committee's work, that would be of great benefit to the Treasury and Ministers and it would aid the better drafting of legislation.
	Having said that, the media in this country are even worse. I leave aside what might be called the serial partisan, party-political press; I am talking about the so-called serious press. When we issued our report, the newspapers carried headlines along the lines of "The Lords slam the Treasury". As the noble Lord, Lord Wakeham, pointed out, we chose three issues to debate. On one, we disagreed, rightly, not with Ministers or even the Treasury but with Revenue officials who did not consult as they should have done. If they had, they would not have needed to amend the Bill right at the end of their deliberations in the way that they did, as they would not have included certain things in the Bill in the first place.
	That was one part of the three issues that we looked at and, even there, we broadly agreed with the Revenue on anti-avoidance measures, and we certainly agreed with it on the other two issues. It will not be known to the media or to anyone else outside that our committee also spoke about the way in which the professions exaggerate in these matters. Plainly, they were wildly excessive in talking about the number of people who would be affected by inheritance tax through the use of trusts, although, as the noble Lord, Lord Wakeham, will know, at the time I was a little alarmed that we might inadvertently have set up trusts in our wills, even if we had not intended to do so. However, we were generally constructive, as we always are in our reports, and I am sorry that the Government and Ministers do not recognise the value of the sub-committee's work.
	We rightly criticised the lack of consultation, but I recognise that officials—I am not talking about Ministers now—did not want to consult because of the fear of forestalling that could have allowed excessive tax avoidance, which our sub-committee does not want to see. But the plain fact is that, if anyone cares to read it, all the evidence that we had indicated that the dangers of forestalling in this respect were very small.
	Although I do not want to dwell on this, in other cases we agreed with the Government's desire to cut out some of the rather exotic tax avoidance schemes. But we know that one area, which has been mentioned already, is growing in terms of loss of revenue—the MTIC, or missing trader intra-Community, fraud. We know from the evidence that we took that it is a very serious matter and one that is growing rather than declining. It is growing because criminals are using this sophisticated fraud to take more and more money out of Revenue and Customs. The ONS is also having to change its statistics because it recognises that, if it does not do so, it will show billions of pounds in the statistics which are simply being duplicated through frauds.
	Unfortunately, much as we supported it, I fear that the Government's new legislation is not getting anywhere near meeting that problem. I know that the Chancellor—indeed, any Chancellor in any Government—would not want to see the European Union become involved in our tax laws, but it seems to me that in this instance that is the only way that we are going to get across the problem. It applies not only to the UK; it is an intra-Community fraud which applies right across the Community. I believe that the only way to deal with it will not be in the kind of legislation, or even more sophisticated legislation, in our Finance Bills, but on an intra-Community basis. We should be pressing the 25 member states. It is never easy to get agreement, but on this I would have thought there was a better chance because they are also suffering. I hope that the Government and the Opposition will support changes that will allow us to have serious discussions to stop this very serious fraud before it gets even worse, as it seems to be doing.
	I turn briefly to the economy. Of course, there are problems—it would be incredible if there were none—because of what is happening in the global economy and events elsewhere, including what we have just been discussing in your Lordships' House, the problems in the Middle East and the effect that is likely to have on the global economy and on our own economy—events over which any Chancellor of the Exchequer would have no control. I can safely leave it to the Minister to tell us all about the wonderful things that the Government are doing and I can safely leave it to the noble Baroness, Lady Noakes, to tell us how terrible the Government are. To talk about the economy as a failing economy, even for her, is a bit much. After nearly 10 years of an economy growing—

Lord Barnett: My Lords, I was surprised and delighted with how brief the noble Baroness was in her opening remarks. She obviously could not find enough to criticise the Government for. I shall leave that aside. Normally I can rely on her being very critical of everything to do with Finance Bills and the economy. I look forward to hearing some constructive proposals about how she would amend the Bill.
	I recognise that everything is not always brilliant in our economy, but at the moment it is difficult not to accept that in the past nearly 10 years we have had economic growth, which is unusual. I do not want to quote the Minister but he will tell us how great it all is. I have a problem with inflation. We know that the Opposition initially opposed the setting up of the Monetary Policy Committee of the Bank of England. I am sure that noble Lord, Lord Forsyth, did not do so because he is too intelligent to oppose such a sensible proposition. I am sorry he was not in his place a few moments ago because I referred to something he said. We have a very low rate of inflation—around 2 per cent—and the Governor of the Bank of England has forecast, as has the Monetary Policy Committee, that it will stay broadly at that level for the next two years.
	Despite that, the Governor is constantly speaking around the country about the serious dangers of inflation. Frankly, if he has to increase interest rates by a couple of quarter per cents over the next few years to keep inflation at the figure that he has forecast of around 2 per cent, would that be disastrous? I am beginning to worry that the Governor of the Bank of England does not have enough to do. If he is going around the country spreading gloom about the rate of inflation when it is only around 2 per cent, and he forecasts that it will stay there for two years, I wonder what on earth he is talking about. I could have understood it coming from the noble Baroness, but not from the Governor of the Bank of England. Perhaps I could suggest to the noble Lord, Lord Wakeham, that the Economic Affairs Select Committee could call the Governor before it to ask a simple question: what on earth is he on about?
	I am obliged to my noble friend for pointing out that I have spoken for too long, but I shall take another minute or two.
	The golden rule has been raised again. The Economic Affairs Select Committee, under the chairmanship of the predecessor of the noble Lord, Lord Wakeham, said that it was a better system than any other that has been devised in the European Union. For my part, if it is slightly overreached, it would not be a terrible disaster. Other than that, I leave the defence of the Finance Bill and the economy to my noble friend who I know will manage very well.

Lord Marlesford: My Lords, I cannot resist making a comment on the maiden speech of the noble Lord, Lord Burnett. I shall do so in the context of suggestions about certain people paying to come here. Having heard the speech, in my opinion the House of Commons deserves a footballer's transfer fee for releasing him to be a Member of your Lordships' team.
	First, I want to make some remarks about the Chancellor's Budget and the finance Bill, and then I shall discuss Britain's economic situation in the context of the EU and world outlook, as reflected in the Chancellor's speech. I believe that as a consequence of his decision three years ago to abandon his reputation for caution, Mr Brown is facing serious dangers in keeping to his cherished two golden rules. As my noble friend has said, he has changed the definition of the economic cycle so frequently it is hard to hold him to account. He now depends on nothing unexpected happening and, of course, plenty is going wrong. It will be very hard to rein back on spending. The military commitments overseas are huge and growing rapidly and the provision made is quite inadequate. Then tax revenues, at a time when the world economy slowdown is starting, are likely to be much less buoyant than expected.
	More serious is the threat to the Chancellor's sustainable investment rule, which means net debt has to be below 40 per cent of GDP. It is already some 37 per cent and is expected to exceed 38 per cent in each of the next three years. But let us look at the accuracy of the Treasury forecasts for the current year and last year. In his 2002 Budget the Chancellor predicted a net debt at £18 billion for the current year, 2006-07. He is now predicting that debt at £36 billion, double the earlier figure. In his 2001 Budget the prediction was even worse. He predicted net debt for 2005-06 at £12 billion and it has turned out to be three times larger at £37 billion. For the probable last year of this Government, 2008-09, he is predicting £25 billion of net debt, a figure which could on past form be anything between £50 billion and £75 billion—and by my reckoning he has only £25 billion to play with.
	My last point on the Budget is to say how foolish it was for the Chancellor to allow the Paymaster General—the right honourable Dawn Primarolo, who has been lurking in the depths of the Treasury ever since 1997—to attempt to make those drastic changes to inheritance tax which have caused such great concern to much of middle England. The proposals were not even in the Budget speech, and I have been told that the Inland Revenue officials were kept in the dark about them until a couple of weeks before they were put in the press release. I am glad to note that the Select Committee was robust in its condemnation of,
	"the clumsy handling of this issue".
	Thank goodness most of the worst of Dawn Primarolo's proposals have been abandoned.
	Changes are needed to IHT. Many of the minor rules seem quite absurd. For example, there is an annual small gift limit exemption, intended for Christmas and birthday presents, which is still only £250 per donee. That level is both unjustifiable in today's money and prosperity, and unenforceable. It should at least be quadrupled. That is a small point.
	The lesson is that there must be consultation on nearly all tax changes. I remember the very detailed consultation on Mr Healey's 1976 proposal for an annual wealth tax. The potential damage was so well demonstrated by the House of Commons Select Committee that the tax was abandoned. The unfortunate French are still stuck with a wealth tax, and it has proved a severe constraint on entrepreneurial activity and the readiness of successful French entrepreneurs to retire in France.
	The Chancellor is to be congratulated on sticking, for all these years, to the 40 per cent top tax rate introduced by my noble friend Lord Lawson 18 years ago in his 1988 Budget. That was, incidentally, the only Budget speech when the House of Commons had to be suspended in disorder, with Dawn Primarolo being one of only 14 MPs who voted against the Speaker's motion on that occasion. I looked it up in Hansard.

Lord Marlesford: My Lords, some people have top rate plus 1 per cent, but many still have an ultimate top rate of 40 per cent. Let us never forget that when my noble friend Lady Thatcher was elected in 1979, the top tax rate was 98 per cent, which applied in today's money at an income threshold of about £76,000 a year. Think of that: 98 per cent at £76,000 income.
	I turn to the macroeconomic outlook. Britain's economic growth fell to a rather poor 1.7 per cent in 2005, not that much better than the eurozone's 1.3 per cent. This year it looks like 2.4 per cent, sadly altogether lower than the US's 3.5 per cent. These figures are nothing compared with China and India, which are growing at 10 per cent and 9 per cent respectively—and China has no inflation at any rate. These countries are rapidly replacing the manufacturers of the western world.
	Britain has a big advantage in having already moved its economy away from manufacturing. In 1979, manufacturing made up 27 per cent of UK GDP and 28 per cent of employment. In 2004, manufacturing was down to 15 per cent of output and, last year, to 12 per cent of employment. Service industries now account for some 73 per cent of the economy. We must remember that there is still scope for growth in productivity and manufacturing, especially as we focus on high value and higher technology products. In 2004, output per head grew by over 6 per cent in manufacturing, the best for 15 years. Last year, however, I am afraid that it was down to 2.5 per cent.
	France and Germany, on the other hand, have retained a considerable manufacturing base which they seek to protect by every means possible. That is not necessarily in their national interest. The thesis of invasion of industries by new technologies is 40 years old, and was sponsored by the Americans at the time of the formation of Route 128 in Massachusetts and the subsequent various science parks. There have been so many examples since that time: IBM mainframe computers losing out to laptops, telex being replaced by fax and then e-mail, photographic film by digital cameras, Hoovers by the Dyson cleaner; the list is endless. The important thing is that government economic policy should encourage this process.
	Another way forward is through the so-called platform company, which organises the production of its products throughout the world, sourcing wherever materials, components, manufacture and assembly is cheapest. A good example is the Dell computer company: flat screens are made in Taiwan; the chip and software are American but the chip is made in Taiwan; the mechanics and box are manufactured and everything assembled in China. That enables national participation where appropriate. Profits and risks are spread between countries, as are jobs. The net effect tends to be broadly contra-cyclical—another plus. We have enjoyed an element of this with British participation in the Airbus.
	A word on monetary policy: I am a firm believer in its value, both to cool and to stimulate the economy. But to be able to use it in both directions means that there must be real interest rates to vary. Japan is an example of where the zero interest rate was a disaster, from which the Bank of Japan is only now freeing itself. The Fed got rates down to a dangerous 1 per cent level but, since June 2004, it has wisely raised rates to the present 5.25 per cent. Our own 4.5 per cent rate probably needs to go higher.
	The European Central Bank has bravely resisted French and German government pressure for loosening to help those countries avoid the necessary structural change. Indeed, the ECB has taken a first step to tighten. There comes the question of what is the right rate of interest. Two possibilities are: either a figure which gives some return to savers—I suggest 3 per cent real is the minimum—or a real rate roughly equal to long-term growth. In the West, that should also be about 3 per cent plus.
	Protectionism looms—the easy way out for politicians seeking re-election. How can Peter Mandelson agree to the ban on imports of New Zealand butter announced last week? Did he not learn a little lesson from his defeat over the bra wars with China? If this is the attitude of the EU Trade Commissioner, what hope has the Doha round got? Both Hong Kong in December and Geneva this month failed. In the absence of a Doha succession, the way forward for freer trade is almost certainly through bilateral deals.
	Four other factors are important. First, there is a need to deregulate. That applies at both EU and national level. It is much easier said than done. Governments are constantly trying to do it and the EU Commission is trying to do it. Some months ago, a commissioner told one of the committees I am on that, when he was trying to deregulate, he had discovered that many in the Commission thought their main job was to keep the chauffage—their jobs—going.
	Secondly, there is a need to face up to the demographics of retirement. It is frankly absurd and totally feeble that the British Government are still hiring public sector employees with a retirement age of 60. The present demographics suggest that, for a sustainable balance between the working and retired populations, the average retirement age should be over 70. Obviously there will be those in tough manual occupations for whom this would be inappropriate, but it is the average that matters. I would like to have seen more courage from the Government in tackling what will be a fundamental problem for our successors.
	Thirdly, there is a need to give state aid to those who need it rather than those who do not. One example: it is indefensible that benefits such as the winter fuel payment and free travel for pensioners should be untaxed. I recognise that those are rather hot political potatoes.
	Fourthly, I congratulate the Government on opening the door to nuclear power. I particularly congratulate the noble Lord, Lord Sainsbury, on his bold recognition that nuclear power is a renewable. The world urgently needs a massive nuclear power programme to combat global warming, to ensure that world supplies of hydrocarbons are kept for what only they can be used for and, not least, to reduce the cash flow and power of jihadist terrorism.
	We must all recognize that world economic prospects are dominated by politics, both national and international. In 1933, President Roosevelt, at the height of the depression, when Keynesian policies were about to rescue the world economy, reassured his fellow countrymen,
	"the only thing we have to fear is fear itself".
	If only that were true today.

Lord Monson: My Lords, would the noble Lord not agree that the party to which he belongs did nothing whatever to raise the small gifts exemption, or the exemption for gifts in consideration of marriage, in line with inflation for the 18 years they were in power from 1979—or during the Heath Administration, when inflation was rampant?

Baroness Noakes: My Lords, I must have expressed myself badly because I have been misheard twice by the Benches opposite. I did not say that this is a failing economy; I was clear about that. I said that the economy is being managed sub optimally.

Lord Sheldon: My Lords, I am sorry if I did not hear the noble Baroness correctly, but that is what I thought I heard. The important thing is that the criticism seems to be increasing as the years of success increase, which I find rather strange. Every year of success should be applauded, not condemned. But let us turn to the finance Bill.
	There is some unease about the role of the House of Lords, but it does not look at rates of tax or at political issues of taxation. That is not our job. The Economic Affairs Committee looks at technical aspects of the finance Bill, as do tax experts, business companies and the press. It has a useful level of experience and expertise and has among its members two ex-Chancellors, three ex-Treasury Ministers and an ex-governor of the Bank of England, who are the core of the success of the committee. Its role is to present its views on technical aspects of the finance Bill with no party-political involvement. It has been very successful in that, and the way that we limit the kind of discussions we have and the recommendations that we make should be welcomed widely.
	Despite the reduction in the rates of income tax over the years, the level of tax avoidance and evasion has not fallen as much as many had expected. There have been a number of complex and contrived schemes and, despite the close watch by Her Majesty's Revenue and Customs, new ones have emerged to circumvent the control of the Government. The perennial problem is the need to counter tax avoidance. The Government rightly continue to stress the high priority that they put on dealing with tax avoidance, which undermines the fairness of the system and causes market distortions. They have to deal with ever more complex and contrived schemes designed to avoid income tax. People who undertake those schemes are very well paid and remunerated for the work they do. We all realise the difficulty in dealing with the highly paid innovators of such schemes that put the Government at a disadvantage, given the time required to deal with them. Quite rightly, the Government have decided to close down a number of schemes with effect from December 2004. They also have disclosure rules that deal with targeted anti-avoidance measures. I welcome those actions and support the considerable increase in staff that has been provided to deal with such problems, and I understand the difficulty of keeping up with new schemes that wealthy individuals are able to acquire. One of the major problems is that very wealthy people get information about how things are developing and deal with them in advance of any actions that the Treasury can take.
	A serious aspect of tax fraud is the missing trader intra-community fraud. There have been few occasions in our financial past where such damage to the Revenue has occurred. Small but expensive goods—mobile telephones are the most prominent examples—are imported by a trader who pays no tax when importing them. He sells the goods with the VAT added, which is not sent to HMRC. After a number of such deals, the trader absconds with the money. The goods are exported, the VAT is then reclaimed, the same goods are reimported and the carousel continues. Major criminals are now getting in on the act, and European countries are incurring losses that some estimates say amount to about €50 billion a year. When Mr Curwen from the Treasury appeared before the committee on 22 May, he said that missing trader intra-community is considered to be a,
	"criminal attack on the UK tax system".
	He said that losses were estimated as £2.5 billion in 2001-02 and under £2 billion in 2004. The Treasury accepts that the level of fraud is increasing and believes that more than 1,000 companies are involved. It agreed that about £1 of every £11 of exports represents fraudulent activity. I find that astonishing.
	It is the underlying problem of the VAT system. According to the Association of Chartered Certified Accountants, a solution was possible in the 1990s by initiating a single VAT system within the European Union, but there was a lack of trust between Governments about how the pot would be shared out, so no solution was implemented. Eventually a solution might come about, but an awful lot of money will be lost before it does. To get all the countries to agree will be a major undertaking. We must accept that and try to find some way of dealing with the problem in the interim.
	HMRC considers that carousel imports and exports were worth more than £7 billion in the first three months of this year, which is a rise of 35 per cent in one year. Year by year, the Treasury could lose enormous amounts. Some estimates have been extraordinarily high, and they show no evidence that the amount of fraud will not rise, let alone be contained.
	A more recent development is that the goods on the roundabout are not physically moved and the fraud is conducted with paperwork. European Community involvement is needed, which is not easy to achieve with all 25 countries, many of which have trade arrangements that will be difficult to amalgamate because they have different systems. Not only may all 25 countries not agree on what needs to be done, but the VAT system might need to be amended, which involves long-term negotiation.
	I shall answer the question asked by my noble friend Lord Barnett. The Treasury said that it was in discussion with the European Commission on a proposal for derogation and HMRC pointed to some successful prosecutions. I hope that when the Minister replies he will put these matters in perspective so that we can see the scale of the actions in the context of the increasing problems being faced, and that he will say how derogation will happen and how these matters will be dealt with.

Lord Northbrook: My Lords, we are once again here on a hot July day to discuss the Finance Bill and the report on it produced by the committee chaired by my noble friend Lord Wakeham. As usual, the committee has done a fine job and deserves our congratulations on an excellent and impartial document. I very much regret that the Government do not respond to it officially in writing. Why does that remain the case, despite the report's non-party-political tone?
	I declare an interest as an investment fund manager. I can support certain aspects of this Finance Bill. I welcome the broad thrust of the Government's attempt to prevent the abuse of charitable reliefs, and their attempts in Clauses 95 to 98 to provide a legal and tax framework to accommodate the Sharia-compliant finance arrangements of wakala and diminishing musharaka. That is important, not only to make us more competitive in an increasingly global market in Islamic finance but also for tackling financial exclusion in Britain's Muslim community.
	Like other speakers, I welcome the Government's long-awaited framework for real estate investment trusts. Reform here has long been overdue as such structures have been in place in other developed countries for many years. I feel that more could be done to encourage residential properties into REITs. Like my noble friend Lady Noakes, I ask the Minister why REITs are not allowed to be quoted on the "A" market. I cannot see the objection, as they are permitted on the main market. Without this concession, smaller companies without the benefits of REIT status could be taken over and the UK property market increasingly dominated by a relatively few large REIT companies.
	Secondly, what is the progress of discussions between the Treasury and the property industry referred to in last Saturday's Financial Times? On new real estate investment trusts not listed on the stock market, as I understand it, there is an opportunity to entice the £40 billion offshore property fund management industry back onshore, although at present it does not pay the 20 per cent tax on their income.
	Like many other speakers, I welcome Clauses 19 to 21, which crack down on missing trader intra-community fraud. My noble friend Lord Wakeham's sub-committee's report made an excellent study of this area of the Budget in a level of detail that I do not have time to debate today. I reiterate the sub-committee's concern set out in paragraph 100(d), on whether the safeguard to protect the innocent trader is sufficient. Also some commentators, according to the accountants Smith and Williamson, have criticised the clause for appearing to transfer the responsibility for policing or controlling fraud from the state to the taxpayer rather than dealing with the fraud itself.
	My criticisms of the Budget focus on two main areas: first, the Chancellor's habit of altering existing relief, which makes life so uncertain for companies, which are thus unable to plan with certainty; and, secondly, trusts. Since 1997, I have thought that the Government were going to have a go at trusts, as they seem automatically to consider them tax-avoidance vehicles, whereas the truth is often very different. Where some avoidance clearly has occurred, as my noble friend Lord Wakeham states in his report, this is far from the sole reason for setting them up.
	The problematic change to existing allowances this year comes in four areas: small companies corporation tax, film industry taxation, capital allowances and the home computer initiative. The Finance Bill clauses will remove a non-corporate distribution rate, a 0 per cent rate of tax on corporate profits and effectively take corporation tax for small businesses back to the situation in 2000.
	The Institute of Chartered Accountants in England and Wales stated in its parliamentary briefing note on the Budget:
	"The changes in the Finance Bill will hopefully bring to an end the long run of uncertainty and complexity for the taxation of small business profits".
	Effectively all the Chancellor has done is to abolish the small companies tax relief he introduced. Will the Minister justify that action?
	The pattern of volatility recurs in Clauses 31 to 47, introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts 2000, 2002 and 2004-05, yet the relief still haemorrhaged a staggering £560 million from the Exchequer in the last financial year. I hope that his latest attempt to focus tax breaks more accurately on people making films will provide better value for money than these reliefs have provided to date. I am not sorry to see the back of Section 42 and Section 48 relief, but hope that we will not be faced with more changes to the film tax regime in the Finance Bill 2007.
	The continual cycle of change has produced huge uncertainty in the film industry and has jeopardised some important projects. For instance, I understand that the filming of the latest James Bond film has moved to the Czech Republic, so even the Government's most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.
	Two more detailed but no less important areas are the changes to capital allowances and the home computer initiative. The Finance Bill announced an increase for one year only in the rate of first-year capital allowances for smaller businesses. This continues a pattern of small and temporary changes which the Institute of Chartered Accountants in England and Wales (ICAEW) says have been,
	"ineffectual in encouraging business investment".
	The ICAEW states that incentives for businesses to invest need to be provided by large changes to capital allowances announced well in advance. It also says that when capital allowance rates are changed, such changes should hold for a significant time. Does the Minister agree with his institute on those recommendations?
	The home computer initiative was announced with a great fanfare in 1999. It was repackaged in 2004 because not enough people were taking it up and was suddenly shut down in 2006 because too many people were using it. The HCI was supported by the home community initiative allowance (HCIA), the CBI and the TUC. The HCIA stated:
	"HCI is a cornerstone of the Government's digital strategy which sets out to make computing more universally accessible".
	So, why abolish the scheme? This is another example of the Government confusing business, making it impossible to make long-term plans when tax breaks keep changing.
	The Minister's description of the trust tax changes conveniently ignores the hullabaloo that first greeted their proposals, together with a subsequent battle to amend them. My noble friend Lord Wakeham's sub-committee, to its credit, covered this in detail, but had to go to print before the story was complete. From the Economic Affairs Select Committee's report the following picture emerges: first, there was no detail in the Budget speech itself and detail only emerged in the Budget notes issued by the HMRC. Secondly, the major IHT changes then announced provided that accumulation and maintenance trusts and IIP trusts would be charged in the same way as discretionary trusts unless they met much tighter conditions, with a 20 per cent entry charge and a 6 per cent periodic charge every 10 years, and an exit charge proportionate to the time elapsed since the last periodic charge.
	My noble friend Lord Wakeham's report continues:
	"This announcement gave rise to a storm of protest in the newspapers from a wide range of representative bodies. The main points made related to the lack of consultation on IHT within the framework of the on-going consultations on the modernisation of the taxation of trusts; the impact which the changes would have on ordinary families who used trusts for social reasons and not for avoidance; and the large number of people who would ... have to review, and if appropriate alter, their will at a compliance cost which, it was said, would in total amount to very considerably more than the estimated Exchequer yield of the changes".
	Those changes were estimated at £15 million.
	The accountants Smith and Williamson stated in their Budget commentary that these,
	"significant changes ... will broadly affect many families who have held assets in such trusts"
	This will require much restructuring and seems to hit hardest on those planning for the future for instance paying towards children's education, protecting assets for young children and planning post a divorce.
	With apologies to the House for going over the ground covered by the noble Lord, Lord Burnett, in his excellent maiden speech, the major additional change proposed originally by the Budget to accumulation and maintenance trusts was to effectively force them to distribute capital to children at 18 rather than 25. Another particularly sneaky change involved life-interest trusts where assets are left on a life interest for the deceased's spouse. They would not be deemed to be comprised in the deceased spouse's estate, which meant the spouse exemption would not be due.
	Another serious issue that remains with regard to trusts is that if an individual takes out a life assurance policy in A&M or life interest form after the Budget deadline, I understand that, for the first time, the policyholder will have to pay inheritance tax at a rate of 6 per cent on the excess above the IHT threshold. Following Budget day, the accountancy and legal industries formed a coalition to argue for the changes to be reviewed. As a result of that pressure, the Government, without issuing a press release, published amendments in June and further changes in early July. Without boring the House on the detail, they introduced a concession for those trusts wishing to carry on until the beneficiary reaches the age of 25, although still imposing a maximum IHT tax of 4.2 per cent of relevant assets.
	Despite the government climb-down, concerns remain. The Law Society has stated:
	"We are concerned that existing trusts will still be adversely affected by the proposals—as will lifetime trusts such as those established on divorce; those set up by individuals facing diminishing capacity to deal with their affairs, such as people with early stage dementia; and grandparents wishing to help their grand-children".
	Accordingly, our party tabled a large number of amendments on Report to address those concerns, all of which the Government ignored.
	I will leave the last word on the subject to the report of the sub-committee chaired by my noble friend Lord Wakeham. It states:
	"As regards the IHT treatment of trusts, we are firmly in favour of consultation, which we believe to be necessary if clarity, certainty and simplicity are to be achieved, but there was none in respect of the IHT trust provisions. We did not hear evidence to show why measures to counter forestalling could not have been taken which would have enabled consultation to have taken place. The measures were announced in a low key way and lacked clarity about the Government's objectives. This led to considerable uncertainty about the impact of the provisions and to an exceptionally wide range of estimates of the numbers of people likely to be affected and the costs of having to review their wills.
	We accept that, to the extent that there has been significant avoidance using A&M and IIP trusts, the Government is fully entitled to tackle it. But the measures proposed in the Finance Bill also impact on a wide range of trusts which are used as part of the responsible stewardship of family assets without an avoidance motive, making them less certain and more complex and costly. As the Government did not make clear what it was trying to achieve, we remain uncertain whether the policy of neutrality towards trusts has been altered or whether the impact of these changes on ordinary family business needs further consideration and the remedies used to counter avoidance need to be more closely targeted ... We believe that the way in which this whole matter has been handled is not the way in which tax changes should be made".
	In conclusion, that once again shows the Government altering a perfectly good structure, in the form of accumulation and maintenance trusts, which a Labour Government introduced. As paragraph 180 of the report reminds us, and as the noble Lord, Lord Barnett, will remember, they were first introduced in 1975. I am sure that he will agree: by all means clamp down on avoidance, but not at the expense of innocent victims who have set up trusts for bona fide reasons.

Lord Haskel: My Lords, I shall speak about the Finance Bill less from the point of view of tax or economic affairs—I was not a member of the sub-committee, but I join the noble Lord, Lord Northbrook, in congratulating it on its report—and more from that of business, which is where the Bill affects most people—at work.
	I support the Bill because it continues the Labour management of the economy which, as my noble friends Lord Barnett and Lord Sheldon, said, has been so right for business over recent years. For me, perhaps the most important element of that is the Government's attitude towards private enterprise—no, not the difference between public and private. The difference is that, during the past few years, we have seen that a Labour Government support private enterprise, whereas Tories try to protect it. We are now able to judge the difference.
	Let me explain. Private enterprise creates income and wealth. It creates jobs. It offers choice to consumers and workers and drives innovation and growth. It creates the opportunity for people to better themselves and their families through effort and enterprise. It creates new routes for social mobility and rewards initiative, contribution and hard work.
	On that, I think that we all agree. The Tory way was to protect private enterprise from interference—interference from imports, from competition, from regulation and from Europe. Those who pay for that are the consumers, in higher prices. Society pays through lack of opportunity and businesses themselves suffer because there is less need to change. Yet to be profitable and successful, companies need economic stability. In his opening remarks, my noble friend explained how we delivered low interest rates and low inflation. Business needs access to skilled and flexible personnel, so the Government delivered skills training and tripled the number of apprenticeships. Business needs new technology, so the Government doubled investment in basic science and prepared a 10-year plan. My noble friend told us about the research and development credit scheme, which contributes to that.
	So we broke down the protective trade barriers and, instead of walking away from Europe, we engaged with our European Union partners. This is one reason why the City of London is so successful in the European Union. That openness provided the City with the scale, scope and challenge for it to be efficient and innovative. Yet the Conservative Party is still looking for alliances with anti-European conservatives in the mistaken belief that that will protect our economy.
	The fact is that all that was achieved in the face of strong opposition from noble Lords opposite in the name of not interfering with wealth-generation—and, according to the noble Baroness, Lady Noakes, because there is too much regulation. Much new regulation happens not because of a wish to interfere but because, as the noble Lord, Lord Marlesford, implied, we are becoming aware of more and more things about work and society. We are becoming more aware of how health and other hazards prevent people from being more productive. Good businesses are rarely poor employers because they are concerned about health and safety and workers' rights. They are becoming more aware of the importance of the environment and sustainability. Indeed, we now know that a healthy and sustainable environment and a healthy economy go together.
	For most businesses, the ultimate goal is to create long-term value for shareholders. That is not achieved by behaving in a way which is socially or environmentally unacceptable or unethical. Indeed, the best-run companies find areas where shareholders' long-term interests overlap with those of society.
	But what about regulation of markets? Some say that it kills free enterprise. Does it? We now know that business can operate successfully only within the accepted norms of the society in which it works. Those norms vary from market to market. There are much tighter rules for selling pensions and banking services than there are for selling clothing. Instead of condemning regulation of markets wholesale, as some tend to do, our careful regulation of each individual market has helped private enterprise by dealing with market failure and encouraging more variety. That has helped business to grow. Indeed, environmental regulation has created a whole new market for environmental products. Amazingly, that is an area where we now see business and the environmental non-governmental organisations working together.
	Yes, our policies of supporting private enterprise instead of protecting it have produced one or two surprises. The absence of economic volatility has enabled private enterprise to take on higher levels of debt. As a result of credit being available in greater quantities and on better terms than ever before, sooner or later some borrowers will get into trouble. The noble Lord, Lord Marlesford, reminded us that much low-tech manufacturing has gone elsewhere. He spoke also of higher tech manufacturing, which is staying here and growing. That is very much service-based, and the Treasury must review the way that it labels some activities as manufacturing and others as services. The output of the part of a manufacturing company engaged in research, consultancy or technical assistance is often categorised as a service. Yet without offering these services, modern manufacturing companies would lose their customers. This is how they stay at the leading edge.
	The noble Baroness, Lady Noakes, pointed out that unemployment is growing, but the number of people in work is at its highest point for 10 years. At the moment, the number of people entering the labour market is slightly larger than the number of jobs being created. This may be due to immigration or to people coming off invalidity benefit, but private enterprise is helped by keeping the growth in balance, as the Government are doing. My point is that it is this engagement with business, support for private enterprise and the acknowledgment that society has moved on that has created the economic dynamism in this country, rather than the so-called free-market paradise which the Tories seek to protect. This is what has created our economy.
	The noble Baroness spoke of economic decline. I agree with my noble friends Lord Barnett and Lord Sheldon that, in recent years, thanks to private enterprise, Britain has been growing faster for longer than any of the G7 leading industrial nations—the Minister gave us the numbers in his opening remarks. This is largely because Britain is an attractive place in which to do business because of the support that business gets from Government. Protection by the Government would not make it nearly as attractive. The Finance Bill expands and continues this support, which is why I support the Bill.
	Much has been said this evening about the Chancellor of the Exchequer. Perhaps we would all like to unite in congratulating him on the birth of a son this morning.

Viscount Trenchard: My Lords, I, too, thank the Minister for giving us this opportunity to debate the Finance Bill today. I look forward to hearing his comments on those who think that the existence of the House of Lords Economic Affairs Committee somehow trespasses on the territory of another place.
	The Bill is, as usual, much too long and does nothing to simplify the complexity of our tax system after 10 Budget speeches by the present Chancellor of the Exchequer. There is little to help the country to develop the productivity and competitiveness required to operate successfully in the international economy today, still less to compete effectively with powerful new global players such as India and China. As my noble friend Lady Noakes has stated, we welcome the overdue introduction of a framework for real estate investment trusts. However, I ask the Minister to tell your Lordships why those trusts cannot be listed on the alternative investment market, which would seem to be well suited to provide liquidity for investors in such an instrument. I agree with my noble friend Lord Northbrook on this issue. I, too, congratulate the noble Lord, Lord Burnett, on his excellent maiden speech. I hesitate to talk about interests in possession trusts and accumulation in maintenance trusts, about which the noble Lord clearly knows a great deal more.
	The Minister referred to the criticism by the respected and generally measured Economic Affairs Committee that the Government completely failed to consult or to issue any detailed statement of their intention retrospectively to tax such trusts—I agree with my noble friend Lord Wakeham that that was a pity—and said that it had been impossible to consult because of the risk of forestalling. However, the Government have had to introduce 50 amendments to Schedule 20. If they had known that they would have to do so, would they really still not have consulted in advance? In any event, they have given a grace period of two years to make changes to the terms of certain trusts to mitigate unforeseen tax liabilities.
	As the result of a successful campaign by my right honourable and honourable friends in another place and by the Law Society and a number of other professional bodies, the Government have been forced to abandon many of the more aggressive retrospective proposals originally included in the Bill. However, the remaining provisions affecting the creation of new lifetime trusts and the disqualification of grandparents as creators of new trusts remain. The Chancellor has, by these provisions, created a new wealth tax. Even after his climbdown, he has created a system whereby there is an incentive imprudently to distribute trust assets to beneficiaries at 18 rather than at the more sensible age of 25. The Minister's explanation implied that the Government believe that all trusts are set up purely to avoid tax, but I agree with my noble friends Lord Wakeham and Lord Northbrook and other noble Lords that very many trusts are set up to provide the prudent management and stewardship of family assets, often to the benefit of all those involved in the associated businesses. Perhaps the Chancellor hopes that encouraging the distribution of trust assets to 18 year-olds will lead to the profligate dissipation of inherited assets, thus making a major contribution to the levelling-down and socialist redistribution of wealth that it appears remains his not-so-hidden agenda. It is surprising that the Chancellor is still considered the favourite candidate to succeed the Prime Minister, given that he has presided over a period of material deterioration in the competitiveness of the British economy and that his stealth taxes have wrought so much harm on the lives of millions of pensioners who work or have worked in the private sector.
	As my noble friend Lady Noakes stated, the UK's position has declined from the fourth most competitive country in the world in 1997 to the 13th today. If UK plc were properly accountable to its shareholders, the Government would surely have had to resign by now. The Chancellor has inexorably raised both corporate and individual taxes, repeatedly breaking his false promises not to do so. We have lost most of the comparatively competitive and attractive corporation tax position that we enjoyed when this Government came to power. The Government have massively increased public sector spending but to little beneficial effect, as much of the new investment has been wasted on the creation of unnecessary administrative posts and ill fated, expensive projects such as the disastrous new IT system for the National Health Service.
	London is now regarded as a very expensive and relatively less attractive centre for major international companies to maintain their European headquarters. The capital's infrastructure remains very poor despite the massive revenues from the congestion charge and the sky-high Underground fares already accruing to the Greater London Authority, which clearly sees itself as a kind of second Exchequer. It is shameful that London Underground announces to the world that a good service is running on all, or certain, lines as if it expects approbation merely for providing the very expensive service that it is contracted to provide. It costs £3 in London to travel within one zone on the London Underground for a one-trip cash ticket, compared with the equivalent of 80p in Tokyo and £1 in Brussels to travel anywhere by underground railway or bus for up to an hour. In Tokyo last week, I heard that NHK—the Japan Broadcasting Corporation—has decided to relocate its European headquarters from London to Paris, despite London's unrivalled position as by far the most important news and information centre in the European time zone. The reason for such a surprising move is that London has become too expensive. In her excellent maiden speech in the debate on the importance of London as a financial centre, the noble Baroness, Lady Valentine, said:
	"While we remain broadly competitive with the rest of Europe on taxation, the gap with the euro-zone is closing. In 1993, the tax burden as a percentage of GDP was 8 per cent lower than Europe, whereas by last year that advantage had fallen to 3 per cent".—[Official Report, 8/6/06; col. 1402.]
	This Budget has done nothing to alleviate the rising costs of locating businesses in this country. The British Chambers of Commerce has shown that the total cost of regulation has risen by nearly a half since 1998, and this excludes the cost of the national minimum wage. As for the public finances that devour an ever-increasing proportion of GDP, the Chancellor argues that we continue to meet his golden rule. But he has lost all credibility because of his repeated retrospective reclassification of what expenditure counts as investment and his convenient revision of the start date of the current economic cycle in order to include the years 1997 to 1999, during which he had to follow the previous Conservative Government's financial plans.
	These reclassifications and revisions have enabled the Chancellor to manipulate the figures so as to be able to claim that he has met his golden rule. His record of accurate prediction of the Government's borrowing needs is, to put it mildly, unimpressive. In 2001, he predicted that he would have to borrow just £12 billion in 2005-06. In the event, he has borrowed £112 billion. A CBI study shows that government consumption is rising as business investment falls. The tax take has risen from 34.7 per cent of GDP in 1996 to a projected level of 38.5 per cent for 2008, whereas every one of our G7 competitors cut taxes between 1996 and 2004.
	Besides the damaging increases in personal and corporate taxation, and the crippling accretion of new regulatory burdens, the Government will stand condemned by history for the damage that they have done to our once excellent occupational pension schemes, which were the envy of the world when Mr Brown moved into No. 11 Downing Street. I make no apology for returning to the Government's early misguided and bad decision to abolish the dividend tax credits previously and logically received by pension funds and charities. Although the Government still refuse to admit that they made a serious and damaging mistake with the introduction of that measure in 1997—its first and worst stealth tax—the effects of that catastrophic decision continue to become clearer.
	Noble Lords will be aware that the Government have lodged an appeal against the recent ruling of the Information Commissioner that the public have a right to know what forecasts the Treasury used when it decided on its pensions tax raid. As is now universally acknowledged, the tax raid's effects took money out of pension schemes and damaged the stock market. I estimated a year ago that the cumulative effects of the Government's action had cost our pension schemes £166 billion. It is very right that the thinking behind the Government's decision should be made public. A year ago, on 19 July 2005, the Minister told your Lordships' House that claims about the cost to pension funds of the abolition of tax credits were overstated because they did not take account of the benefits of the reduced corporation tax. It is true that the corporation tax rate has been reduced from 52 per cent to 30 per cent since 1979. However, only 3 percentage points of the total 22 percentage points reduction was carried out by this Government—none of that has been since 2000—during which time we have slipped by 10 places to 20th out of 30 among major OECD countries in terms of corporation tax rates.
	The noble Lord subsequently wrote to me on 5 August last year—I was grateful to him for that—saying:
	"If, in one year, companies paid zero dividends and reinvested all their profits in the business, then presumably this would increase the future returns to existing shareholders, thereby increasing share prices".
	We must look forward to the Government's belated explanation for their action when, as it certainly should, the Information Tribunal overrules the Treasury's appeal, although I can understand the Government's reluctance to admit their astonishing failure to understand the relationship between dividend levels and share prices.
	It is the Government's fault that Britain's 100 leading companies have a pensions black hole of £150 billion, as revealed by a study for the actuarial profession's pensions board. The Budget does nothing to restore incentives to save. It does nothing to alleviate the growing perception of the UK as a difficult place in which to do business and one with a massively complex taxation system. The Chancellor claims that he has brought stability to the economy, but the evidence is that he has brought uncertainty and volatility. Examples of that include his introduction and abolition of the home computer initiative and his introduction and abolition of the 0 per cent band of corporation tax.
	My honourable friend Mrs Theresa Villiers has said in another place that she strongly opposes the Government's hare-brained proposal to bring forward the filing dates for tax returns to September. I hope that the Minister will confirm that this does not mean that the Government intend now or in the future to accelerate the payment dates for income tax: four months' acceleration would represent a further significant increase in tax. The Government's projections predict that income tax will raise £144.7 billion during the 2006-07 tax year, representing an increase of 109 per cent on the £69 billion raised in 1996-97. This huge increase in income tax is mirrored by the 125 per cent rise in inheritance tax paid since 1997. The number of people caught by the higher tax rate of 40 per cent has increased from 2.1 million in 1997 to 3.4 million last year. Forty per cent may not be as high a top tax rate as many other countries have, but it bites at a much lower level. It may not be all bad, but the Government cannot deny that we are slipping badly against our international competitors by many measures.

Lord Newby: My Lords, this has been the most extraordinarily wide-ranging debate. We have had a very erudite discussion of technical tax issues; we have also discussed the state of the economies of India and China, the demographics of retirement, nuclear power, environmental regulation, the Underground and the need for a dynamic model of the economy. I was so confused that I thought at one stage that the noble Lord, Lord Forsyth, was calling for a dynamic model of the Underground.
	I congratulate my noble friend Lord Burnett on his extremely impressive maiden speech, which the noble Lord, Lord Barnett, suggested might be an application to join the sub-committee of the Economic Affairs Committee dealing with the Finance Bill. I took it as an application to join the Lib Dem Treasury team and, as far as I am concerned, without consulting the Whip, I accept.
	On the overall balance of tax and expenditure and the stability of the economy, the Minister repeated some of the Government's past achievements, including the independence of the Bank of England, which took place some considerable time ago. Unfortunately, he said nothing about the one thing of substance that has happened since the Finance Bill was introduced in the Budget—the fundamental savings review. If the Prime Minister was to be taken at his word last autumn, this was to be a far-reaching assessment of the country's spending priorities. I suspect that the document was rather a damp squib, but it contained, among other things, a rather extraordinary proposal for a four-year real-term freeze on Civil Service salaries. The Chancellor, for all his reputation for stability, has adopted in this respect, as in others, what might be called a stop-go-stop approach to public sector pay. That does not seem a sensible basis on which to proceed. I am sorry that we have not had a chance in this Session to debate that and the rest of the proposals in the fundamental savings review.
	On the Finance Bill, I start with the report and status of the sub-committee of the Economic Affairs Committee and the extraordinary attack made on it by the Government in general and the Leader of the Commons in particular. They referred to the risks of intrusion on Commons financial privilege. Indeed, the Leader of the Commons referred to the sub-committee seeking to,
	"circumvent the financial privilege of the Commons".
	As the noble Lord, Lord Wakeham, straightforwardly set out, that is not the basis on which the sub-committee was established. Having served on it, I know that it is not the basis on which it operates. It is a shame that the Government cannot accept that here are people doing their best to improve the quality of legislation in a non-partisan way. Surely that should be the function of an upper Chamber, if it has one at all. It would not be so bad if we all felt that Finance Bills in general, particularly this one and the four previous ones, were documents of such perfection that they did not need further scrutiny.
	The principal theme of the sub-committee over the four years of its life and of today's debate has been the lack of adequate consultation on tax measures, which leads to unworkable proposals and unintended consequences. That, in turn, often leads to provisions being amended or withdrawn. The classic example last year was SIPPs. This year there has been the unsatisfactory treatment of trusts covered by inheritance tax. During the Bill's passage through the Commons, what were widely seen by people who knew something about this as unworkable proposals led to such a spate of amendments that those who were trying to scrutinise it found it virtually impossible to do so because of the time between government amendments coming forward on extremely technical issues and debate in the Commons.
	As a former Customs and Excise man, I found particularly irritating about the Government's justification of the way in which they dealt with these provisions the idea that an element of forestalling might prevent consultation from taking place. This is not like provisions relating to excise duty, where, if you know that the duty is going up, you can take a lot out of bond and avoid taxation; it is not the same type of provision at all. It seems to me that the excuse, for that is what it was, of forestalling is a bit like those in trouble—including sometimes the Government—using the phrase "sub judice" to avoid discussing an issue that is vaguely in the legal machinery somewhere but is not actually sub judice at all.
	I am sorry to raise a new subject so late in the day, but there is another area in which there has been inadequate scrutiny of this year's Finance Bill and which is leading to unintended consequences. I refer to how the Government have tried to prevent the exploitation of tax relief by charities, or those who make donations to charities, in Clauses 54, 56 and 58. Clause 54, for example, limits the range of substantial donations to charity that benefit from tax exemption or relief. Charities are rightly worried that this clause could inadvertently catch unexceptional transactions when there has been no intention to evade or avoid tax. I welcome the Government's view on what the charity bodies have proposed. As with tax avoidance issues, under their proposals the Government would provide advance clearance for proposed transactions or investments by charities. That would save a lot of difficulty and might mitigate some of the potential damage that could be caused.
	Another aspect of this is in Clause 58, which limits the benefit that a donor gets from his donation to charity to £250. If a company gave £500,000 to a charity, the charity would say, "Thank you very much, you can come to our annual dinner and take a table"—which would cost significantly more than £250. Under the Bill, the tax benefit of the donation would be negated by what is virtually a minimal benefit. Having been involved personally in getting for a charity a significant corporate donation, I know how much senior executives expect, rightly, that minimal trade-off—if a charity has high-profile events that they and some of their colleagues might wish to attend, they expect to be invited. That is how it works. If the Government are too prescriptive in limiting that benefit, as they appear to be in the Bill, they run the risk of reducing the level of corporate charitable donations. I raise that at some length as an example of the unintended consequences of the Government's proposals that has not been adequately dealt with in the Commons.
	A third area of the Bill that had to be amended because it was unacceptable when subject to scrutiny was the announcement in the Budget of the shortening of the deadline for submitting online and paper tax returns, following a review by the noble Lord, Lord Carter. These proposals were criticised as impractical and, as a result, the noble Lord, Lord Carter, has revised his view, and the provisions will allegedly be changed so that the deadlines remain as they are, in the short term at least. Again, adequate consultation would have avoided the need for a U-turn. Can the Minister indicate when the Government will be able to announce their final decision on those new deadlines?
	This all demonstrates that there are systemic problems in how we make tax legislation. Most noble Lords have referred to that in one sense or another. I have two suggestions. The first issue is dealt with in the Economic Affairs Committee report. We need to look in much more detail at the general anti-avoidance rule option, which would cut hundreds of pages from tax legislation and make things harder for the professional tax avoiders. There is discussion in the report of the need for pre-clearance procedure, which I agree would be necessary. However, I do not believe that it is impossible to devise a pre-transaction clearance system. I hope that HM Revenue and Customs will, as the report suggests, continue to give serious consideration to that.
	There is a sentence in the report that is very Delphically and subtly drafted, and which sums up an aspiration in which I have no faith. It says:
	"HMRC's vision that a decline in the growth of complex legislation might come about at some point as a result of the tax avoidance industry going into a decline following behavioural change on the part of taxpayers is attractive".
	It is attractive but not wholly plausible—nor, I must say to the noble Lord, Lord Forsyth, do I believe that a fairer and simpler tax structure would in itself lead to a withering of the tax avoidance business. That is wishful thinking. So a general anti-avoidance rule should be looked at more seriously.
	The second change that I would suggest is to split the Finance Bill into a Bill that looks at tax rates, thresholds and incidence and a tax reform Bill that deals with everything else. This is not a new idea, and the Treasury always objects to it on the basis that you cannot split tax raising and other measures. But there have been plenty of examples given this evening of sections of the current Finance Bill that clearly have nothing to do with tax rates at all. All those issues and provisions dealing with the management of the tax system need careful pre-legislative scrutiny if they are not to run into the kind of risks that noble Lords across the House have described in respect of specific areas in which the Government have run into difficulties. Unless we do something like that, in my view we shall not get a significant improvement.
	The Economic Affairs Committee report shows what can be achieved by careful consideration and, in effect, post-publication scrutiny of aspects of tax administration. That principle should now be extended to all aspects of the management and administration of our tax system.

Lord Howard of Rising: My Lords, I congratulate the noble Lord, Lord Burnett, on his very good and entertaining maiden speech. I congratulate the noble Lord, Lord Wakeham, on his committee's excellent report and his robust comments, along with those of the noble Lords, Lord Barnett and Lord Newby, on the role of the committee.
	I thank the noble Lord, Lord McKenzie, for introducing the Bill, to which my noble friend Lady Noakes responded in her customary impeccable style. As usual, she focused on the essential points. In spite of what the noble Lord, Lord Barnett, said, I think that my noble friend was, as she always is, extremely constructive. Her comments reflect the Government's wish to appropriate an ever greater portion of the national wealth, which is then spent without, unfortunately, introducing the reforms that are so badly needed and to which she referred.
	The more Government impose taxes, the more people will try to avoid them, either by adjusting their affairs or by moving to a different tax jurisdiction, as my noble friend Lord Trenchard pointed out in his excellent speech. Business individuals nowadays are international and will move to the most friendly tax environment. As our economy evolves from manufacturing to service industries, it is ever easier to cross frontiers. It is no accident that Google and many other major companies have recently located to Ireland. For Britain to stay prosperous, it must continue to attract and keep the creators of wealth, both corporate and individual. The noble Lord, Lord Marlesford, made some most relevant comments on this subject.
	The various anti-avoidance measures to which my noble friend Lady Noakes referred and which take up so much of this year's finance Bill tackle the symptoms and not the cause of the problem. There is an increasing weight of evidence that avoidance is a result of higher and ever more complex taxes, which are a massive stimulus to the avoidance industry. I urge the Government to look at this, together with the evidence available from other countries such as Ireland, the United States of America, Australia and others, which demonstrate a considerable improvement in revenues from lower taxes, as my noble friend Lord Forsyth pointed out so ably.
	A singularly important point which my noble friend Lady Noakes raised was to expose the shame of ceding sovereignty on tax matters to Europe. As she said, tax is not a matter of Community competence. I would welcome hearing what the Minister has to say about that.
	I turn to the matter of trusts, about which there has been so much discussion in recent weeks, and to which some of your Lordships have referred this afternoon. I must declare an interest as a beneficiary, trustee and settlor of trusts. Many of the points I wish to raise today have already been mentioned by your Lordships, so I will try not to waste time by repeating the same things. The first question is, as my noble friend Lord Wakeham mentioned earlier, why have the Government introduced this measure? I am not alone in finding it difficult to understand or fathom the reason. There has been much discussion and speculation, but no real conclusion. It has become apparent that the original statement, repeated by the Minister, on the impact of the changes—that only 6 per cent would be affected—was wrong. The Government had no real idea of the huge number of people who would be affected. I have a great respect for the Minister, but there is such a weight of evidence that on this occasion I am unconvinced by his statement.
	As my noble friend Lord Trenchard and others have pointed out, the new regime was brought in without consultation, even though consultation on minor changes to the income tax and capital gains tax treatment had been going on for two years. The excuse explained by the Minister was a fear of forestalling. For a set of changes that, per the Red Book, are planned to raise £15 million a year, this is a weak excuse. My noble friend Lord Wakeham also made some most pertinent comments on that. It is always possible to announce new rules that will apply from a date and to consult properly on the detail—for example, the considerable tranche of capital loss anti-avoidance measures in the Bill. Had the professional bodies been consulted, they would have pointed out, despite what the Minister said, that trusts, particularly "interest in possession" trusts, are used principally to protect assets and people, and not for tax avoidance. The noble Lord, Lord Northbrook, spoke eloquently on that.
	There are many who will suffer—for example, those getting divorced. Where this is concerned, trusts are used as practical management devices and are nothing to do with tax avoidance. Trusts are used to ensure that funds are properly protected. They are normally directed to keep the ex-spouse and then the children of the marriage, rather than going to the ex-spouse's new family. That will now be subject to tax. The noble Lord, Lord Burnett, gave us an excellent example of why that is wrong. Are the Government saying that all divorces are to be on a "clean break" basis, or else the family faces a double penalty—the divorce and the inheritance tax hits on the property in trust?
	The Government propose to keep privileged tax treatment for trusts for the disabled. Unfortunately, the definition of "disabled" for these purposes is too restrictive. It does not include many people who would want to set up trusts for themselves; for example, those who suffer from gambling, drug addiction or alcohol addiction. New trusts set up by those who do not fall within the definition of disabled will suffer the tax charges. Why is this necessary? What avoidance are the Government seeking to tackle, when such trust property would in any event remain in the estate of the self-settlor and be subject to inheritance tax when he or she dies?
	In future, unless they fall within the narrow definition of disabled, people who recover damages as a result of claims for personal injury, criminal injuries compensation and so on, where the sums of money are placed in trust for their benefit, will suffer a tax. The amount of damages received will have been calculated to take into account the recipient's living expenses, care and medical needs, but not the tax charge that may now arise. If a tax charge now results, it will deplete funds set aside for the person's care. That may increase the need to resort to the state for additional support.
	What is clear is that even the amended proposals will do the most harm not to the rich minority referred to, but to many people of relatively modest means whose wealth has been increased by the inflation in the monetary value of their houses to a level where these proposed taxes will bite. They will have few, if any, other assets. They do not have great wealth; they have a home. That means that they will be unfairly penalised if, for any number of perfectly good reasons, they wish their main asset to be held in a trust. It is a perfectly valid wish to preserve the family home, or indeed any other form of family wealth, by passing it to another generation. That is quite possible without a tax penalty, providing that it is an outright gift and the donor survives for seven years. Why should there be a tax penalty for passing the same wealth via a trust, where the difference is that there is provision to prevent foolish dissipation of wealth? Even the very ordinary use of insurance policies written in trust is now penalised. The Government might well have stopped what they see as tax avoidance, but only at a price borne by ordinary, prudent families who try to ensure that their dependants do not have to submit themselves to means-tested benefits. Are the Government prepared to talk to the insurance industry about changes in a future finance Bill which would permit prudent family provision?
	In the other place, the Paymaster General explained why trusts should be taxed, as can be seen in the Official Report of Standing Committee A of 13 June at cols. 606-07. She set out a series of steps by which inheritance tax could be avoided by the use of trusts and explained that therefore trusts should be taxed. But these same steps could be taken by the use of outright gifts, and there would be no tax penalty, provided that the donor lived seven years. The justification given for taxing trusts was that the original donor—the grandparents, in the example—could, from the grave, still retain control over the assets. That would not be so in the case of an outright gift.
	That is an amazing statement. In the overwhelming majority of cases, these trusts will have been created not for tax purposes, but for the sake of good and sensible money management. Are the Government really saying that prudence is an undesirable objective and should be taxed, but that if money is given outright with no provision for future good management—so that it can easily be frittered away—it is a better way to do things? The idea is so extraordinary that one wonders if there is an ulterior motive. Is this the first of a two-pronged attack, and the next move will be against potentially exempt transfers, as outright gifts are known? Will the Minister confirm that there is no plan to tax potentially exempt transfers or to extend the length of time the donor has to survive? It is important and fair that people in this country, as well as the businesses to which the Minister referred, have a stable tax environment in which to plan and conduct their affairs.
	Finally, I urge the Government to react promptly to unforeseen anomalies which crop up and cause suffering. There have already been 50 amendments to the trusts section of the finance Bill and doubtless further problems will arise. It would be comforting to know that prompt action would be taken to prevent hardship.
	Before finishing, I ask the Minister to pay attention to the wise comments in the brilliant speech of my noble friend Lord Forsyth.

Lord McKenzie of Luton: No, my Lords, I am not saying that. AIM has been successful. We are saying that, for real estate investment trusts, the degree of transparency and regulation in governance is not sufficient for what we are seeking to achieve at this stage.
	A number of noble Lords mentioned the withdrawal of the exemption on computer equipment that was introduced in 1999. The Government made clear that the exemption would be kept under review to ensure that it met its objectives. Evidence suggests that, while it has provided greater access for many employees, it has also been misused. Employees have been able to buy computers out of their pre-tax income, but in some instances have been offered games consoles and MP3 players as part of the package.
	So far as the Marks and Spencer judgment and group relief are concerned, the Government welcome the ECJ judgment, which takes into account the concerns expressed by the UK and several other member states. The judgment means that the UK's existing system of group relief can be preserved. The European court's role is to interpret the European treaty, not to set national rules on tax. We, like all member states, have a veto on European legislative proposals relating to tax, which the Government have taken care to propose.
	The noble Lord, Lord Burnett, raised a number of issues about trusts. I will try to deal with some of them, and we will follow up those that I am not able to cover in the time available. I think he said that it should be possible for those who are not parents to put assets into trusts for minors, irrespective of their relationship. People can still put money into trusts for children; this will just fall in the mainstream IHT rules for trusts.
	A number of noble Lords suggested that the definition of a disabled person is too narrow. The definition in the Bill is in line with that adopted for trust modernisation. It caters for mental and physical incapacity and is deliberately focused on cases where the disabled person faces very substantial difficulties in handling their financial affairs. It is not intended as a relief for disability as such, so we do not think that a broader definition is appropriate. It was suggested that life insurance protection policies should be outside the regime. Protection policies can be valuable property, and it would be wrong in principle to disregard them for inheritance tax purposes.
	My noble friend Lord Barnett focused on MTIC fraud, which, as all noble Lords have identified, is extremely serious. He asked about the measures being put in place and how effective they would be. The goods subject to the reverse charge, which we have sought to get subject to the derogation, should apply to over 90 per cent of the goods affected by MTIC fraud at the moment—chips, mobile phones and so on. The UK plays an active role in collaborating with European partners in improving the EU's ability to counter fraud.
	The noble Lord, Lord Marlesford, raised issues about the sustainable investment rule. Again, the Government have met that to date. In 11 of the 18 years of Conservative Government, net debt was above 40 per cent. This Government's record is very good in comparison.
	It was suggested that there was no mention of the IHT proposals. Noble Lords will see a reference to them at page 118 of the Red Book, paragraph 5.102.
	Interest rates were mentioned, but the Government do not comment on that; it is the job of the MPC. One thing that the noble Lord said that sent shivers down my spine concerned whether the winter fuel allowance should be taxed. Given that I received a letter the week before last suggesting that I might be eligible later this year, I was greatly concerned.
	The noble Lord, Lord Marlesford, talked about productivity and economic growth. The UK is making progress in boosting productivity compared to past performance. Over the first half of the current economic cycle, actual trend productivity growth was 2.59 per cent a year, compared to 2.04 per cent over the previous economic cycle. Latest data suggest that the output-per-worker gap with Germany has closed and the UK now leads Japan by over 11 percentage points. The gap with France has approximately been halved since 1995.
	It was suggested that forecasts were subject to major errors, but the record shows that errors since 1997 have been fewer and smaller than in the previous period.
	The noble Lord, Lord Sheldon, asked about the process of derogation, for which we have applied. The commissioner has to agree, after which a process involving other member states eventually goes to ECOFIN—because all member states need to give their approval. We are hopeful of speedy progress, given that our European partners are aware of how seriously we view the issue, which has an impact on them, too.
	That is not the only matter that we are looking at. In addition to the 2003 provisions there are risk-based controls designed to identify and prevent bogus businesses from registering for VAT, fast-track deregistration for those who enter the VAT system and trade fraudulently, international co-operation and frontier activity, including the use of scanning technology to better identify goods involved in fraud, and others.
	My noble friend Lord Haskel spoke with conviction and experience about how the Government have supported private enterprise. We have done that, not least by creating economic stability under which businesses can flourish. But we have been discussing specific measures in the Bill regarding qualifying costs for R&D tax credits, the temporary increase in personal allowances for small enterprises—the fact that that is temporary does not necessarily mean that it will not have an impact—the new film tax credit and others.
	The noble Lord, Lord Northbrook, mentioned real estate investment trusts. I have dealt with AIMs. No reference was made to the trust changes in the Budget, as can be seen in the Red Book.
	The new film tax reliefs represent a well targeted replacement for the old system that deliver generous levels of support, targeted directly at film-makers, representing better value for money for UK taxpayers.
	The noble Viscount, Lord Trenchard, mentioned AIMs. The Government do not believe that all trusts are set up to avoid tax. We recognise that they are used to deal with a range of family circumstances. But that is a separate question from the tax regime that should apply to them. Trust assets for 18 year-olds do not prevent accumulation to the age of 25. I am bound to say that we have rather more faith in young people than perhaps the noble Viscount has. I looked at our debates on the Company Law Reform Bill and there was a debate about whether directors must be aged 16 or 18. Noble Lords on the opposition Front Bench argued that the age of 18 was entirely appropriate.
	I was astonished at the challenge to the position of London, given that over recent years it has advanced its position as one of the two truly global financial centres. I have dealt with the issue of reclassification of the golden rule.
	I do not have time to go over the position of occupational pension schemes, except to say that the withdrawal credit was part of a process started by the Conservative Government, who reduced the ACT credit. That was much to do with holidays taken on unrealistic expectations of long-term growth in the stock market, as well as changes in the understanding of demographics and longevity. If the noble Lord looks back, he will see that that the reduction of the tax rate from 52 per cent was associated with the withdrawal of 100 per cent first-year allowances and was meant to be revenue-neutral at the time.
	My noble friend Lord Rosser again raised issues about MTIC and whether £500 million was the appropriate provision for the impact of the changes. That was a prudent basis on which we have made provision. That revenue will be gained by fraud reduction, but clearly we need to ensure that we keep abreast of future changes. Would other goods be substituted? It is possible that they will. It remains to be seen whether there are sufficient goods of high value and low volume that make those frauds particularly possible. Do we have enough staff? We increased staff and the Government are intent on keeping that under review. We should see this as serious crime. It may be seen as white-collar but it is crime.
	The noble Lord, Lord Forsyth, gave us an interesting view of the tax system and of where it was heading. I was surprised at the way in which he referred to avoidance. He said, without any qualification, that it was perfectly acceptable, however artificial the scheme might be. I was surprised that he did not qualify what he said and I wonder whether that is the official position of the Conservative Party.
	We have dealt with issues of economic growth.
	I was asked why the Finance Bill is larger than it has been in previous years. In the four years to 1997, the average length of the Bill per year was 412 pages and 210 clauses. Since 1997, the average length has been 466 pages and 178 clauses per year. So I do not think that there is a significant difference from one year to the next.
	I shall write to the noble Lord, Lord Newby, about the advance clearance of tax relief for charities and also about when a decision is due on tax deadlines for online returns. He will forgive me if I am not able to deal with that more extensively.
	I hope that I have already picked up a number of the points raised by the noble Lord, Lord Howard. I touched on the figure of 6 per cent. Historically, the percentage of estates that have paid IHT has been 6 per cent of the total, and that figure has been broadly consistent over quite a long period. The Government have brought forward no plans to change the rules on potentially exempt transfers or to extend the length of time.
	I must close the debate now as I have run over the time available to me. Again, I thank noble Lords for their insightful and wide-ranging contributions. The Government are focused on developing the macro-economic stability essential for our future productivity, growth and stability. The Bill will support business while ensuring fairness, and it will enable the country to sustain and build on a competitive, enterprise-based economy, allowing for security and opportunity for all to benefit from growing prosperity.
	On Question, Bill read a second time; Committee negatived.
	Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Lord Wakeham: Moved, That this House takes note of the report of the Economic Affairs Committee on the Finance Bill 2006 (6th Report, HL Paper 204).—(Lord Wakeham.)

Baroness Blood: rose to ask Her Majesty's Government what steps they will take to develop more integrated schools in Northern Ireland and to encourage the transformation of existing schools to integrated schools.
	My Lords, I declare an interest. I am the campaign chair of the Integrated Education Fund in Northern Ireland.
	"I do not see how any man can think that peace can ever be permanently established if the children are separated at the commencement of life on account of their religious opinion".
	When Dr Doyle, the Roman Catholic Bishop of Kildare, expressed that sentiment in the mid-nineteenth century, he could have no idea that 170 years later 95 per cent of children in Northern Ireland would still largely be educated in separate schools, divided by the virtue of their religious affiliation.
	I thought it would be appropriate to begin today by paying tribute to the late Lord Henry Dunleath, for it was he, through this House, who successfully secured an amendment to the Education and Library Board Order 1972 allowing existing schools in Northern Ireland to convert themselves into integrated schools—a process we commonly refer to today as transformation. It was with disappointment that no existing schools availed themselves of that process, which eventually lead to the creation of Lagan College, Northern Ireland's first planned integrated school, which this September will celebrate its 25th anniversary. It began with 28 children, at a time of enormous civil unrest and violence, and today educates over 1,000 children.
	It may be surprising to many to learn that little has changed since the early beginnings of Lagan College. Back then, pioneering and risk-taking parents brought that school into existence and today the same pioneering and risk-taking parents are taking forward initiatives to establish integrated schooling for their children. In 1981, the Government denied any funding to this newly established school, and here we are again in 2006, with a different Government denying another four schools the right to exist with government funding in their community.
	There is no doubt that integrated education has been one of the most significant social developments within Northern Ireland over the past 25 years. It is sometimes hard to believe that parents alone have been largely responsible for taking the number of integrated schools from one in 1981 to 58 today, spread right across Northern Ireland and educating more than 18,000 children. But does it work? The answer is yes, both in terms of academic attainment as well as creating friendships across the divide. Independent research has consistently demonstrated that children who have attended an integrated school have more positive attitudes toward children who come from a religious or community background different from their own. A recent 2004 Young Life and Times survey conducted by Queen's University, Belfast, also highlighted that children from integrated schools have significantly more friends from different backgrounds outside school. Integrated education consistently outperforms the Northern Ireland average for the non-grammar sector in GCSE results.
	That is not to say that integrated schools are a panacea for all Northern Ireland's problems. Nor is it to say that the children who attend, or have attended, integrated schools are saints. That is simply not the case. There is, however, widespread support for having Catholic and Protestant children, and those of other faiths and none, together in the same school as a certain way of increasing the chances of building understanding and respect for each other's cultures and traditions from an early age. Indeed, many mothers and fathers who meet at the school gates and on sports days also get the chance of interacting socially for the first time in their lives.
	Let us remind ourselves that Northern Ireland is becoming more ethnically diverse. Our education system should reflect that. It is no longer just about Protestants and Catholics, but a wide range of people whose cultures and traditions also need respecting and understanding. Integrated schools serve children right across the social spectrum, with many located in areas of severe deprivation and segregation, with an average of 25 per cent of pupils eligible for free school meals.
	Despite the positive results shown by integrated education, it is disappointing that the Government have remained largely neutral on the subject. There have been some positive moments, such as the Education Reform (Northern Ireland) Order1989, when the former Education Minister—now the noble Lord, Lord Mawhinney—included specific reference to integrated schools in legislation and established more effective ways of setting up and funding new integrated initiatives. However, despite a statutory duty to encourage and facilitate integrated education through the 1989 order, and the reference to integrated education in the Good Friday agreement, there has been an unwillingness by successive direct rule Ministers to take this issue on. That is undoubtedly due to the powerful vested interests of traditional politics and conservative religious institutions. Life has been made very difficult for parents seeking the right to educate their children together. Unsurprisingly, the Government continue to put the vast majority of funding into the existing segregated system. Ironically, on the day before funding was denied to four integrated school projects this year, the Minister responsible for education announced the capital funding of more than £300 million for the segregated system.
	I appreciate that a declining birth rate in Northern Ireland, across both the traditions, has placed great strain on the education system as a whole. That has led to an increase in the number of spare places, estimated to be around 55,000 and rising. Secondly, I appreciate that the financial pressures on the education system have created the need for increased rationalisation of the schools' estate. However, there is a clear lack of strategic planning from the government department responsible, the Department of Education. It would appear that rationalisation is currently being implemented by individual authorities such as the Council for Catholic Maintained Schools and the Education and Library Boards. It is essential that the Government re-examine current proposals and future strategies against their shared future policy. The recently published triennial action plan on a shared future policy states,
	"on the basis of clear criteria to be developed, projects relating to new schools, re-organisation or rationalisation are more likely to justify receipt of financial support if they are shared or operate across the community".
	The key is implementation. Unless this is done immediately, the risk is that segregation will be further strengthened. To date, there has been no sign of widespread meaningful collaboration across and between the traditional segregated sectors. There must be a clear delivery mechanism for ensuring greater co-operation or sharing across sectors and the sectarian divide.
	So what should the Government do? The recently announced independent review of education, to be led by Sir George Bain, provides an excellent opportunity for the Government finally to get to grips with the issue. First, it is important to stress that no-one in the integrated movement wants or believes that the Government should impose integrated education against the wishes of any parents. Those campaigning for the development of more integrated schools in Northern Ireland do so on the basis of parental demand. More than 60 per cent of parents consistently state that they would prefer to send their children to integrated schools, yet only 5 per cent of school places are currently integrated. It is important that the Government begin to recognise that more integrated schools can offer potential solutions to their problems. They should not shirk from them because of vested interests.
	Transformation is the process by which existing non-integrated schools can vote by parental ballot to transform to integrated status. Where a transformation is genuine and takes on board the necessary changes to reflect a truly welcoming and diverse ethos for all children in the school it is a major opportunity. As well as the added value and benefits that a proactive integrated ethos brings, transformation will effectively allow a school to open itself up to enrolment from all communities. As we try to manage scarce resources and a declining school-going population, it makes sense, even if only for economic reasons, that the Government actively promote and encourage transformation. I welcome the additional financial support to the integrated education fund to help transforming schools, but that is only a start.
	As the Government, through their shared future policy, start to encourage all schools to consider creative ways of sharing educational resources, transformation should be prioritised. I recognise that all transforming schools to date have come from the mainly Protestant controlled sector, with none from the Catholic maintained sector. However, transformation should threaten no one, and a transformed integrated school should respect and provide for the religious instruction of all children, and the proactive support of all Churches would be welcome. After all, Churches should be concerned that they are providing the best possible pastoral care for all their children, not just those who attend a particular type of school. Children should not be serving the needs of institutions; institutions should be serving the needs of children.
	If a planned integrated school is a step too far for some, let us at least explore just how far other schools are prepared to go. I recently discovered that all over the world, including in the Irish Republic, there are examples of schools that are managed with the support of Catholic and Protestant clergy. If it can happen in other countries, what is the difficulty in taking forward such an initiative in Northern Ireland? As the need to rationalise the education estate develops, I urge the Government to explore such models with Church leaders and education authorities to find out if an innovative model can be developed. Surely there are small rural areas where Catholic maintained and controlled schools working together may become a necessity, especially if the alternative could be the closure of both. We must seriously address the need to provide schools serving all our community. We can call them integrated, community or shared or whatever we like, but let us make it happen.
	With the forthcoming Bain review of education, the Government have already alluded to the possibility of developing shared campuses between schools, similar to recent initiatives in Scotland. While I welcome any steps that could be taken to bring schools closer together in any form, I hope that shared campuses do not become the easy thing for the Government to do—the soft option. The desire of parents and children to have integrated schools is clear, let us not waste it. There is greater potential here than sharing sports halls.
	I call upon the Government effectively to engage with organisations such as the Northern Ireland Council for Integrated Education and the Integrated Education Fund, along with other educational partners in the Catholic maintained, controlled and Irish language sectors to develop strategies for the development of shared education in Northern Ireland. Northern Ireland's education system has suffered long enough from a lack of strategic planning by Government. Parents are still required to lead educational change.
	This makes the denial of conditional approval for the new integrated schools for 2006 and the existing independent Lir integrated primary school all the more infuriating, placing the integrated movement at arguably its most critical juncture in 25 years. The proposals were rejected on the basis that there were existing places in other schools in each area and that approving the new schools would have a negative impact on those non-integrated schools. However, that is surely the point: they would have a negative impact on other schools only if parents decided that the integrated school was their preferred choice. The leap of faith to enrol children in schools starting with no buildings and no teachers is remarkable. To force them back into segregated schools is outrageous.
	It is wrong that existing schools should have the right to veto the development of integrated schools, and I applaud the integrated education fund in offering independently to fund these schools until the Government see sense. A parent's right to have an integrated choice should not be worth less than a parent's right to send their child to a non-integrated school. There is a solution—let the Department of Education conduct community audits and ask the local community what educational provision it wants. Ask the parents and the children about the type of school they want.
	Today, as I speak to this House, a number of new parents' groups are coming together to campaign for an integrated choice for their children, and a number of existing schools are exploring transformation. If the Minister's decision to deny integrated schools earlier this year was an attempt to thwart the process, it could well have the opposite effect. Integration should be the "norm" in Northern Ireland, as it is in others parts of the United Kingdom, not something that needs to be continually fought for by parents, fundraised for and campaigned for.
	Let me finish with two short final points. If I proposed today that the Government should consider segregating our two universities, one for mainly Catholic students and the other for mainly Protestant, you would think it crazy. Why therefore, in a bitterly divided society, continue to separate children during their most formative of years? Now that is really crazy! I asked a young student as he was about to finish his integrated school education what, apart from the great education he had received, was the biggest lesson he took away. He replied: "I learnt to celebrate other people's cultures, not fear them".

Baroness David: My Lords, I am speaking in the debate today to support the excellent and hard work the noble Baroness, Lady Blood, does for integrated education in Northern Ireland. It seems so obvious to me that integrated education is the sensible way forward. Children learning, working and spending the day together, learning how each other lives is the surest way to bring tolerance, understanding and good sense to the people of Northern Ireland and encourage them to live together in amity. I shall be pursuing this theme tomorrow when we are again in Committee on the Education and Inspections Bill.
	I feel a bit of a fraud speaking on Northern Ireland education when I have visited none of the schools that are already integrated. That is not entirely my fault; the all-party group was planning a visit in June and my name was down to go. Alas, the plan fell through and no suitable date could be found before the Summer Recess. However, I hope that the plan will be reinstated in the autumn in the quieter times after the Queen's Speech.
	The Commons tabled an Early Day Motion welcoming the decision of the integrated education fund in Northern Ireland to give financial support of more than £750,000 to establish integrated education in a number of areas, and noted that support for IE was a key theme of St Patrick's week celebrations in the United States.
	We in this House have recently been discussing the miscellaneous provisions Bill, and I am glad to say we carried the vote to end selection in Northern Ireland.
	It was a heavy blow that the Government refused to fund the expansion of IE in Northern Ireland. It seems strange that the Government, so enthusiastic to give parents greater choice over the schools their children go to, did not on this occasion give them what they wanted. The Government talk about a shared future yet, when faced with people so committed to sharing their future that they are prepared to stake their children's future on it, the Government leave them stranded and force the children into segregated schools against their parents' wishes.
	The Minister, Angela Smith, gave as the main reason for the controversial decision that there were too many surplus places in the proposed areas, and the impact that a new school would have on local schools' enrolment. That was hotly contested. Spare places in local segregated schools must not be allowed to veto parental choice where there is great demand and no local option.
	In recent months, five more schools have undergone successful transformation ballots, and there will be two new schools, so that from September this year there will be 64 integrated schools. Deborah Girvan, communications and lobbying manager for the integrated movement, said that even though demand for IE was at an all-time high,
	"tough times are ahead. The Review of Public Administration along with the Shared Future policy, the demographic downturn, and cash strapped budgets, will test the mettle of us all".
	She continued, however, that,
	"the will and spirit of parents, a legacy started by the pioneering parents of Lagan 25 years ago, will give us the resolve and inspiration to fight on and challenge the status quo".
	I very much hope that she is right. The best of luck to IE and I wish it very well.

Lord Parekh: My Lords, I thank the noble Baroness, Lady Blood, for introducing the subject with considerable information and passion.
	I want to begin by making a general point. In all divided societies, schools always face a paradox. On the one hand, there is what is expected of them by way of healing the wounds and divisions that characterise divided societies. At the same time, their propensity to do so is greatly limited, for two reasons. Children come to school bringing all kinds of prejudices that they have learnt from their parents and, although they learn something at school, when they go home at the end of the day, whatever they have learnt—the good that has been done—is negated by parental prejudices and remarks.
	The question is: on what do we rely? We cannot wait until social divisions get sorted out but, at the same time, we cannot expect schools to perform miracles. It is in that context that we should approach the question of integrated education, or integrated schools, in Northern Ireland.
	I greatly welcome the popularity of integrated schools in Northern Ireland. Although only 5 per cent of pupils go to such schools, almost 60 per cent of parents want to send their children to them. That shows that, increasingly, integrated schools are acquiring democratic legitimacy and considerable popularity. But unless we realise the kind of problems that they face, we are likely to run the danger of expecting far too much from integrated schools. I want to raise six questions for the Minister.
	First, the number of integrated schools is inevitably limited. That is for obvious reasons—not because of reluctance on the part of the Government but for purely financial considerations. As a result of demographic changes, there are 50,000 empty places, which is likely to rise to 80,000 within the next three or four years. One always wants to use the facilities of existing schools, rather than open new schools. Obviously, the question arises: what should be our priority and how do we cope with the financial problem that that poses?
	Secondly, integrated schools do not necessarily mean integrated education, just as segregated schools do not necessarily mean segregated education. One may lead to the other, but the two need not be equated. We might have integrated schools, in the sense that they accommodate both Catholic and Protestant pupils, but do they provide the kind of education that we want? Here, the important question is: what is an integrated education? We know what is an integrated school, but what is an integrated education? There are two very different views and we need to be very careful what we ask for. Integrated education has been greatly in demand in the United States in the aftermath of the civil rights movement of the 1960s. Israelis have been wanting to concentrate on integrated education to accommodate the 17 per cent of their population constituted by Arab minorities, which is both Christian and Muslim.
	If we consider all those experiments, including those in Northern Ireland, there are two different approaches. One is that, in integrated schools, one does not talk about differences; one talks only about generalities such as mutual respect, but one does not raise controversial questions. On the other hand, there is the opposite approach, which is to recognise differences and divisions and work through them. It is to get pupils to talk about their differences even if, occasionally, the temperature rises, and to get them to resolve their differences by understanding where they come from. I think that our approach in Northern Ireland has, by and large, been that of ignoring differences rather than getting schools to help children to work their way through deep historical divisions.
	Thirdly, in an integrated school, we have to ask what kinds of teachers are available. So far as I can see, teachers have not undergone any kind of specialised training in integrated education. They, too, are the product of sectarian schools. Some teachers in integrated schools also seek employment largely because it is easier to be promoted, for the very simple reason that these schools are relatively new. I am sometimes told, and the research I have seen seems to suggest, that teachers sometimes lack commitment. I am not saying that they do or do not; I am saying simply that we need to address this question because I very much want integrated schools to succeed in providing integrated education.
	Fourthly, if we are to have integrated primary schools, we will obviously have to have a similar number of integrated secondary schools, because otherwise parents will have the problem of wondering whether there enough spaces in secondary schools for children who have gone to integrated schools. If not, parents might be discouraged from sending children to them.
	My fifth worry is the way in which certain subjects come up again and again and need to be taught in integrated schools. I have seen research done by various academics, including friends of mine at Queen's University, Belfast, which suggests that two subjects—religious education and history—have proved to be the most contentious. It is very important that we find proper ways of teaching these two subjects in particular and develop appropriate textbooks and pedagogical methods.
	My sixth point is that when sectarian schools transform themselves into integrated schools—I am delighted that they do, and I hope they will do so in larger numbers—the question arises: do the ethos and culture change as well? It is not enough for a sectarian school to accommodate a certain percentage of minority students from either of the two communities; it is also important that their teachers undergo a different kind of training. The ethos also has to change so that the schools become genuinely integrated schools.
	I have not said all this with a view to criticising integrated schools; on the contrary, I have said it precisely because they are the only way of dealing with the deep divisions of Northern Ireland. We should therefore address this question so that they can deliver the kinds of result that we expect of them. While these integrated schools flourish and develop in large numbers along the lines that I have outlined, we have a problem; sectarian schools are bound to remain for some time to come and will not be easily transformed into integrated schools. What do we do in the mean time? I shall make three suggestions. First, it is very important, as all the research has pointed out and as the noble Baroness, Lady Blood, rightly emphasised, that there is greater systematic collaboration between different sectarian schools. This can take the form of an exchange of pupils for part of the time, as happens in Israel and as has happened in the United States, an exchange of teachers, common sports, shared summer camps and shared campuses. We have not paid sufficient attention to the possibility of an exchange of teachers and schools. It is also important that boards of governors of sectarian schools have members drawn from other communities.
	Secondly, much of the curriculum should be in common. I see no reason why different kinds of sectarian schools, while emphasising different kinds of ethos, should not have 90 or 95 per cent of their curriculum in common. After all, our concern is to ensure that they produce citizens who are perfectly at ease with each other.
	Thirdly—I may be slightly controversial here—it might be useful to take a second look at the employment law that allows schools to employ teachers from their own denominations. I see the point of that, but it may sometimes be worth asking whether a Protestant teacher, for example, is unequipped to teach English literature, mathematics or science in Catholic schools, or vice versa.
	As I said—I shall end by ensuring that I am not misunderstood—integrated schools are the only way forward. They will not perform miracles by themselves, because changes have to take place in the wider society, but, so long as we retain a bifocal approach, there is a good chance of success.

Lord Dubs: My Lords, I thank my noble friend Lady Blood for giving us the opportunity to debate this fundamentally important issue for education in Northern Ireland. This year, the integrated education movement is 25 years old. I pay tribute to the many dedicated teachers and governors who have worked so hard to make their schools a success, as well as to the Northern Ireland Council for Integrated Education and the Integrated Education Fund for the very important part that they have played in developing integrated education.
	In integrated schools we have 18,000 pupils, 58 schools and between 5 per cent and 6 per cent of the school student population. It has already been said that there are 50,000 empty school places in Northern Ireland and that by 2015 there will be 80,000. Although the case for integrated education becomes stronger through the empty places that now exist, the case for integrated education in principle does not depend on that. I shall develop the argument on empty places later.
	Some years ago, when I was a junior Minister in Northern Ireland, I went to an event in Dungannon for parents who had played a part in a project in which their children lived for six weeks with families in the United States. American families each took one Catholic and one Protestant child. The event was a reunion of the parents and children who had been on the project. I talked to people as they drank cups of tea at long trestle tables. It was dismaying to meet many Catholic and Protestant parents who had never before had a cup of tea with a member of the other faith. In a nutshell, that was the argument for integrated education. If children do not know members of the other faith or community, they tend to demonise them. That demonising has played a corrosive part in education and communities in Northern Ireland.
	A couple of years ago, I opened a new integrated primary school in Cookstown. It was an exhilarating experience to see a community made up of members of all faiths—Catholic priests and Protestant, Church of Ireland clergymen—supporting the new integrated school. Most of the governors were local women who had got together to set up the school. It was an exciting occasion. Of course, new schools are bound to be rare at a time when there are 50,000 empty school places. The key is of course to transform existing schools to integrated status, probably through the merger of schools that have plenty of spare places. Otherwise, we will continue having Catholic and Protestant children leaving separate lives.
	Those of us who support integrated education in Northern Ireland do not believe that there is one model for education or that it should always be integrated. We have a much more modest request: parents and children should have the choice of an integrated school. At present, parents do not have such a choice, which is the burden of our argument: do not force one type of education on parents—give parents the freedom to choose. In a recent survey, 82 per cent of parents personally supported integrated education; 81 per cent believed that integrated education was important for peace and reconciliation; and 71 per cent said that they would support a request to transform their school to integrated status. The 71 per cent divided into 69 per cent Protestant parents and 73 per cent Catholic, so there was no religious difference in the wish that local schools should be transformed.
	It is also depressing that the bulk of teacher training is segregated. As my noble friend Lord Parekh said, it is difficult for teachers to teach in integrated schools when their training has been largely on the basis of segregation. Of course, some schools have a mix of children, but they have not adopted the full practice and philosophy of integrated status. Teachers and governors should believe in the philosophy of integrated education, and schools should teach respect for members of other faiths and be balanced in their composition with children of the main faiths as well as those of none. At the moment, just over 2 per cent of Northern Ireland schools are mixed without being integrated, having 30 per cent of more of their pupils from the other religion. That is better than total segregation, but it does not meet the philosophical wish of what a school can do to enable children to understand the community that they live in and bridge the gap between themselves and members of another faith.
	The 50,000 empty school places, while presenting a problem, provide a real opportunity. I believe that many schools with spare places could be merged, leading to an integrated school. Why not ask local parents whether in such a situation they would favour a merger of two or more schools with the result being a properly integrated school? The transformation of an existing school to integrated status takes place when parents vote by a simple majority in favour of change, but depressingly the vast majority of parents in Northern Ireland—86 per cent—do not know that that is possible. That becomes even more important as education information for parents when we consider the problem of declining numbers and the need to reduce school places.
	Every Northern Ireland Minister with whom I have discussed this supports integrated education. A Shared Future, published last year, states:
	"All schools should ensure through their policies, structures and curriculae, that pupils are consciously prepared for life in a diverse and inter-cultural world".
	In a recent speech in Donegal, Peter Hain said:
	"Two segregated primary schools in a village are doomed to closure where a merger might be viable and produce a higher standard, where separately they cannot. Secondary schools with inadequate facilities where a rational school estate with integrated or shared facilities could produce high quality ... The educational future of Northern Ireland must be shared and focused on what unites, or divided it will be bleak".
	Let us ensure that the young people of Northern Ireland are, wherever they wish it, educated together with respect for those of another faith based on shared experience at school.
	Integrated education in Northern Ireland will not solve all the problems of a divided society—no one claims that—but over time it will go a long way towards lessening the divisions. We all remember those terrible scenes at Holy Cross School in north Belfast, when children from one faith had to run a gauntlet of protestors who were violent and intimidating. But then I saw a television news programme featuring children at Lagan College, the first integrated school. When asked what they thought of it, the children said that they could not understand it: "Here we sit next to each other in the classroom, and there is no problem. Yet up there, there is hostility, tension and division".
	There is no problem with government Ministers supporting integrated education. It has been government policy in Northern Ireland for a long time. What it needs is political will.

Lord Smith of Clifton: My Lords, I, too, welcome the debate initiated by the noble Baroness, Lady Blood. It is worth mentioning that, with the exception of the noble Baroness and the noble Lord, Lord Glentoran, we have no speakers—or even attendees—here from Northern Ireland. That is deeply significant.
	Of course, noble Lords who have spoken before me have given all the statistics about opinion polls, redundant schools on so on. I think that the crux can be summed up by saying that, although Northern Ireland has the highest expenditure on education per capita of any part of the United Kingdom, less is spent per pupil than anywhere else. That is the cost of maintaining two overlapping systems. There is a great deal of redundancy and, I have to say, having lived there for eight years, that it is helping to sustain the polarisation of the two communities.
	Our sister party in Northern Ireland, the Alliance Party, has proposed a 10-point plan. I shall briefly go through the points. My good friend, the noble Lord, Lord Parekh, always enumerates his points, and I shall follow him. First, the Government should set a minimum target of 10 per cent of children being educated in integrated schools by 2010. Secondly, the duty on the Department of Education to encourage—not merely to facilitate—the development of integrated education should be extended to the education and library boards and the new single education authority to be established under the review of public administration. Thirdly, the department and other education authorities should have a duty to strategically plan for the future provision of integrated education, including identifying where additional provision needs to be situated. The noble Baroness, Lady Blood, made the point that it was rather pathetic that the Government in Northern Ireland simply limps along trying to survive between pressure groups, rather than taking a lead. It is really now necessary for the Department of Education and other government agencies to act proactively and positively.
	Fourthly, where new schools are being built in Northern Ireland—for example, to service new housing developments—there should be a presumption that they shall be integrated. Fifthly, the Government should encourage the transformation of existing schools to integrated status and review the current procedures to make that easier. The noble Lord, Lord Dubs, referred to that, and all noble Lords who have spoken tonight would agree with that. Sixthly, the Government should reform and relax the criteria for the creation and maintenance of integrated schools, giving recognition to children of mixed, other or no religious background. The noble Baroness, Lady Blood, pointed to the increasing diversity of Northern Ireland's population. It no longer consists of only the two traditional communities; there has been a significant rise in the Chinese and Asian populations.
	Then, the Government should give formal recognition to the contribution being made to the process of reconciliation by mixed schools, those with a mixed enrolment but no formal integrated status. The Government should encourage existing schools to share facilities and, ultimately, campuses. The Government should oppose any creation of a perceived right to a guarantee of public funding for segregated schools, as that could forever entrench segregated schools and frustrate the process of integration. Finally, the Government should advocate the desegregation of teacher training courses and facilities and the familiarisation of integrated education policies and practices in such institutions.
	When we discussed the Stranmillis Bill that would give it a proper legal basis, I remarked that, although Stranmillis and St Mary's had produced some outstanding teachers, leading, particularly at secondary and grammar school level, to Northern Ireland being the best region in the UK for A-level results, the teaching was done with a silo mentality. Stranmillis and St Mary's, while having the virtues of being very good educational facilities, have perpetuated the divide. I should have thought that it would be relatively simple to undertake an initiative so that those two colleges could begin to work side by side to integrate and to teach what integrated education is.
	The noble Lord, Lord Parekh, said that although teachers who came from different backgrounds taught together, that does not mean that they are teaching in an integrated way. We must look at that seriously. I declare an interest: the university over which I had the honour to preside—the University of Ulster—is the only integrated provision in Northern Ireland. That is an example of what might be achieved in the future.
	The expansion of integrated education and shared campuses by both sectors is the only rational way forward. As has been mentioned, the Republic of Ireland is leading the way and has in the past 20 years become a much more secular society than anyone thought possible. Surely, Northern Ireland can follow and learn from that experience. Educational segregation on religious lines is not a recipe for a democratic civil society at peace with itself.

Lord Smith of Clifton: The noble Lord, Lord Dubs, has a point. It is an unrealistic choice for many parents unless they are prepared to bus their children to, or board them in, other areas. Both statistics need looking at again.